See discussions, stats, and author profiles for this publication at: https://www.researchgate.

net/publication/317566088

GEM_South_Africa_2009_Tracking_Entrepreneurship

Article · April 2010

CITATIONS READS

0 4,078

3 authors, including:

Jacqui Kew
University of Cape Town
16 PUBLICATIONS   70 CITATIONS   

SEE PROFILE

Some of the authors of this publication are also working on these related projects:

www.LearnAccounting.uct.ac.za View project

All content following this page was uploaded by Jacqui Kew on 13 June 2017.

The user has requested enhancement of the downloaded file.

TRACKING ENTREPRENEURSHIP
IN SOUTH AFRICA:
A GEM PERSPECTIVE

By

Mike Herrington

Jacqui Kew

Penny Kew
2
 Table of Contents
Introduction 7

Chantel’s story 9

Chapter 1: Why Entrepreneurship is Important 11

1.1 Definitions of entrepreneurship 11

1.2 The South African challenge 12
1.3 Entrepreneurship and development 14

Luvuyo’s story 17

Shirley’s story 19

Chapter 2: The GEM Model 21

2.1 The GEM research project 21

2.2 The GEM conceptual model 21
2.3 How GEM measures entrepreneurship 25
2.4 GEM methodology 26

Pierre’s story 27

Nadia’s story 29

Chapter 3: A Summary of GEM South Africa 2001 – 2008 31

3.1 Introduction 31
3.2 The Global Competitiveness Index 31
3.3 Key findings and recommendations from the GEM South African executive reports 33
3.3.1 Entrepreneurial activity in South Africa 2001 - 2008 33
3.3.2 Profiling South Africa’s entrepreneurs 2001 - 2008 41
3.3.2.1 Gender 41
3.3.2.2 Age 42
3.3.2.3 Population group 42
3.3.2.4 Rural/urban 42
3.3.2.5 Education 43
3.3.2.6 Necessity versus opportunity entrepreneurs 43
3.3.2.7 Skills to start a business 43
3.3.2.8 Sector 43
3.3.2.9 Regional entrepreneurship 44
3.3.3 Who are the job creators? 44
3.3.4 Main inhibitors of entrepreneurial activity in South Africa 45
3.3.4.1 Education 45
3.3.4.2 Cultural and social norms 46
3.3.4.3 Financial and business support 47
3.3.4.4. The regulatory environment and government policies 48
3.3.4.5. Government support for small enterprises 49
3.3.5 Major lessons learnt and actions taken 50

Zubayr’s story 53

3
 Michelle’s story 55

Chapter 4: Entrepreneurship in South Africa in 2009 57

4.1 Entrepreneurship in South Africa: a global perspective 57

4.2 South Africa’s entrepreneurial activity: 2002 - 2009 64
4.3 A profile of South Africa’s entrepreneurs 68
4.3.1 Gender 68
4.3.2 Age 70
4.3.3 Population group 71
4.3.4 Sector distribution 73
4.3.5 Job-creation aspirations 74
4.4 Summary of key findings 75

Johan’s story 79

Samantha’s story 81

Chapter 5: South Africa’s Entrepreneurship Environment: 83

Findings from the 2009 National Experts Survey

5.1 The Entrepreneurial Framework Conditions 83

5.2 An assessment of South Africa’s entrepreneurial environment 84
5.3 Key constraints to entrepreneurial activity 87
5.3.1 Education and training 88
5.3.2 Government policies 89
5.3.3 Access to finance 90
5.4 Key recommendations from the national experts 90

Nontwenhle’s story 93

Siphokazi’s story 95

Chapter 6: Entrepreneurship Through Different Lenses 97

(GEM special focus projects 2002 – 2009)

6.1 Special focus 2009: Social entrepreneurship 97

6.1.1 Introduction 97
6.1.2 What is social entrepreneurship? 97
6.1.3 GEM social entrepreneurship methodology 99
6.1.4 A global comparison of social entrepreneurial activity (SEA) 99
6.1.5 Who are our social entrepreneurs? 102
6.1.5.1 Gender 102
6.1.5.2 Education 103
6.1.5.3 Age 103
6.1.5.4 Population group 103
6.1.5.5 Urban/rural SEA 103
6.1.6 National expert survey findings 104
6.1.7 Conclusion 106
6.2 Special focus 2008: ICT usage in lower-end SMMEs in South Africa 106
6.2.1 Introduction 106
6.2.2 ICT in South Africa 106

4
 6.2.3 Research and methodology 107
6.2.4 Main findings 107
6.2.5 Conclusions and recommendations 108
6.3 Special focus 2007: Youth and entrepreneurship 110
6.3.1 Introduction 110
6.3.2 Research methodology 110
6.3.3 Main findings 110
6.3.4 Conclusions and recommendations 111
6.4 Special focus 2002: South Africa’s township entrepreneurs 113
6.4.1 Introduction 113
6.4.2 Entrepreneurship, growth, employment and poverty alleviation 113
within the SMME sector
6.4.3 Research methodology 113
6.4.4 Main findings 114
6.4.5 Conclusions 117

Henri’s story 119

Ziggy’s story 121

Chapter 7: Access to Finance for South African Entrepreneurs 123

7.1 Bootstrapping your business 125

7.2 Angel or informal investors 126
7.3 Micro-finance 128
7.3.1 Small Enterprise Foundation (SEF) 129
7.3.2 Khula Micro-credit Outlets (MCOs) 130
7.3.3 South African Micro-finance Apex Fund (SAMAF) 130
7.3.4 Women’s Development Businesses (WDB) 131
7.3.5 Marang Financial Services 131
7.3.6 Blue Financial Services 131
7.4 NGO support 131
7.4.1 Zimele Investments (Pty) Ltd 131
7.4.2 Masakhisane 132
7.5 Government funding 132
7.5.1 Khula Enterprise Finance Ltd 133
7.5.1.1 The Khula Land Reform Empowerment Facility (LREF) 133
7.5.1.2 Khula Credit Indemnity Scheme 133
7.5.1.3 Joint Venture Funds 133
7.5.2 National Youth Development Agency 134
7.5.3 The National Empowerment Fund 134
7.5.3.1 Imbewu Fund 135
7.5.3.2 Corporate Fund 135
7.5.3.3 Strategic Project Fund 135
7.5.4 Industrial Development Corporation 135
7.5.5 Innovation Fund 139
7.5.5.1 Patent Support Fund 139
7.5.5.2 Seed Fund 139
7.5.5.3 Technology Advancement Programme (TAP) 139
7.5.6 Gauteng Enterprise Propeller (GEP) 139
7.5.6.1 Start-up finance 139
7.5.6.2 Franchise finance 139
7.5.6.3 Contract finance 140

5
 7.5.7 Red Door 140
7.6 Private funding 140
7.6.1 Business Partners 140
7.7 Debt financing 142
7.7.1 South African banking sector 143
7.7.1.1 Commercial banks 143
7.7.1.2 Merchant banks 144
7.7.2 Foreign banks 144
7.8 Venture capitalists 144
7.8.1 HBD Venture Capital 145
7.8.2 Biotech Venture Partners (Pty) Ltd 145
7.8.3 Triumph Venture Capital 146
7.8.4 Cape Biotech 146
7.8.5 Hasso Plattner Ventures Africa 146
7.8.6 Cape Venture Partners 146
7.9 Conclusions and recommendations 146

Oliver’s story 149

Zieyaad’s story 151

Chapter 8: Recommendations for Policy and Practice 153

Peer Reviewers 159

Acknowledgements 163

About the Authors 164

Appendices 165
Appendix A: The UCT Centre for Innovation and Entrepreneurship 165
Appendix B: List of figures and tables 166
Appendix C: National experts survey participants 2009 168

References 169

6
 Introduction
The Global Entrepreneurship Monitor (GEM) research programme was initiated to explore
and assess the role of entrepreneurship in national economic growth. South Africa joined
the GEM project in 2001, and has participated in all subsequent studies.

Entrepreneurial activity is considered to be an important mechanism for economic

development through job creation, innovation and its welfare effect, which has led to a
growing policy interest in entrepreneurship at a national level. Tracking Entrepreneurship
in South Africa: a GEM Perspective hopes to take the reader on a journey through the
key insights and findings of GEM teams from 2001 to 2009. It is hoped that this book
will continue to stimulate debate about the importance of entrepreneurship in South
Africa, as well as to focus policy-makers’ attention on key areas that require attention if
entrepreneurship is to be allowed to flourish in South Africa.

The book will look briefly at why entrepreneurship is important and will then focus
on the Global Entrepreneurship Monitor project itself. Chapters 3 to 5 will provide
an understanding of South Africa’s global position, will profile our entrepreneurs and
will discuss key inhibitors of entrepreneurial activity in this country. Chapter 6 looks
at entrepreneurship through different lenses - for example social, youth and township
entrepreneurs. Finance, or the lack thereof, is often seen by entrepreneurs as a key
stumbling block. Chapter 7 provides a brief discussion on some current finance options
in South Africa. The book ends with a number of recommendations which could guide
policy-makers in formulating interventions that stimulate entrepreneurship.

Any writing about entrepreneurship would, however, be incomplete if it focused only on

theory and research. The most important part of entrepreneurship is the individuals who
put theory into practice. The book therefore includes a number of stories highlighting the
passion, tenacity and hard work of some of South Africa’s entrepreneurs.

7
8
Chantel’s story...
Cape Town Entrepreneur gets Tails Wagging

SUCCESS SUMMARY

Chantel Fourie has taken her love for dogs and turned it into a profitable business which
is visibly appreciated by the community of Atlantis.

The best way to give a new business every
chance of succeeding is to combine business
know-how with an interest close to your
heart. This is according to Chantel Fourie,
a young entrepreneur from Atlantis who
spends her days with the furry creatures
she loves while growing a business as
challenging and exciting as a new puppy.
Fourie (26) was inspired to turn her passion
for dogs into a business opportunity after
attending the Raymond Ackerman Academy
of Entrepreneurial Development at the UCT
Graduate School of Business (UCT GSB)
last year.
Prior to her time at the Academy, Fourie had
been studying Biodiversity and Ecology at the
University of Stellenbosch. Due to unfortunate

9
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE
personal circumstances, however, she was
forced to end her studies after just two years
and was left feeling uncertain about her plans.
“At that stage I began dreaming about starting
my own business and becoming self-reliant, but
there were so many obstacles to overcome,” says
Fourie. “I didn’t have any entrepreneurial training
or business skills and I knew that raising the capital
would be a serious challenge.”
I knew raising capital would
be difficult – banks don’t
lend out money based on
dreams and I didn’t have
the collateral to apply
for a loan. The Academy
recognised my ambition
and the potential of my
business plan, and has
been a tremendous help
throughout the process.
Luckily, a close friend who knew about Fourie’s
predicament found out about the Raymond
Ackerman Academy and immediately recognised
it as the perfect opportunity for her friend. Fourie’s
time on the programme proved to be the key
that unlocked her potential and kick-started her
entrepreneurial journey.
The young entrepreneur opened the Doggie Tail
Grooming Parlour from her home in Atlantis
in 2007. She had spent months doing market
research, and after drawing up a comprehensive
business plan she was granted a R25 000 loan
from the Academy to get her started.
“Getting the loan was a huge relief,” says Fourie.
“I knew raising capital would be difficult – banks
don’t lend out money based on dreams and I
didn’t have the collateral to apply for a loan. The
10
Ackerman Academy recognised my ambition and
the potential of my business plan, and has been a
tremendous help throughout the process.”
Raising the capital, however, was not the only
challenge that Fourie faced.
There was little encouragement from her
community and she was forced to rely on her own
convictions to give her strength.
“Many people openly discouraged me from
opening a dog parlour, saying that people in
Atlantis don’t love their dogs and there was no
market for it,” explains Fourie.
“But I live in Atlantis and I’m crazy about dogs so
I knew they were wrong. I did conduct a market
survey just to be sure though!” she says.
Doggie Tail Dog Parlour is the first dog grooming
business in Atlantis and its surrounding areas.
Fourie has proved her doubters wrong and now
spends every day spoiling the pets of animal
lovers in her community and beyond.
“At the moment I have about 30-45 regular
clients and many others who come in less
frequently. My portfolio of clients is growing all
the time and there is a great potential for profit,
even though I’m not quite out of the red yet.
When clients see that I really love animals and
care about their dogs’ happiness, they always
come back again.”
Fourie is convinced that her passion and ambition
will motivate her through the tough times ahead.
“Starting your own business is never an easy
journey but being a part of the Raymond
Ackerman Academy has definitely helped to even
out many of the bumps.
“Good ideas and drive are not enough to build
a successful business – you need the business
acumen to complement these other elements. I
was given the opportunity to tap into world-class
expertise and realise my full potential. I intend to
do exactly that!” she says.
 Chapter 1
Why Entrepreneurship is Important
1.1 Definitions of
entrepreneurship
The debate over entrepreneurship is universal.
It is spoken of, written about and discussed
frequently – both in academia and in the
public press. Regardless of where the debate
occurs, entrepreneurship has been identified as
being vitally important to the wellbeing of any
economy, and its potential to contribute to the
creation of employment and the alleviation of
poverty has been well documented.
“Entrepreneur” is a French word with its origin
dating back to the 1700s, and since then has
evolved to mean someone who “undertakes a
venture”. Jean-Baptiste Say, a French economist
of the 1800s, stated that:
“…an entrepreneur shifts economic resources
out of an area of low productivity into an area
of higher productivity and greater yield.”
In a more modern context, the Oxford
Dictionary describes an entrepreneur as:
“…one who organises, manages and assumes
the risk of a business enterprise.”
However, the Oxford Dictionary definition
remains somewhat limited as individuals with
an entrepreneurial mindset are associated
not only with business ventures, but are also
found within welfare, social, adventure and
sporting ventures. Entrepreneurs are also
found in government, universities and other
similar institutions.
There are numerous contemporary definitions,
many of which evolved during the latter half of
the 20th century and were well summarised by
Hitt, Ireland, Camp and Sexton in 2002.

Author Definition
Schumpeter (1934) Entrepreneurship is seen as new combinations, including the doing of
new things that are already being done in a new way. New combinations
include:
1. Introduction of new goods
2. New method of production
3. opening of new markets
4. new source of supply
5. new organisations
Kirzner (1973) Entrepreneurship is the ability to perceive new opportunities. This
recognition and seizing of the opportunity will tend to “correct” the
market and bring it back to equilibrium.
Drucker (1985) Entrepreneurship is the act of innovation that involves endowing existing
resources with new wealth capacity.
Stevenson, Roberts & Entrepreneurship is the pursuit of an opportunity without concern for
Grousbeck (1985) current resources or capabilities.
Rumelt (1987) Entrepreneurship is the creation of new business: new business meaning
that they do not exactly duplicate existing business but have some
element of novelty.
Low & MacMillan (1988) Entrepreneurship is the creation of new enterprise.
Gartner (1988) Entrepreneurship is the creation of organisations: the process by which
new organisations come into existence.

11
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE

Timmons (1997) Entrepreneurship is a way of thinking, reasoning and acting that is

Venkataraman (1997)
Morris (1998)
Sharma & Chrisman (1999)
opportunity obsessed, holistic in approach, and leadership balanced.
Entrepreneurship research seeks to understand how opportunities to bring
into existence future goods and services are discovered, created, and
exploited, by whom and with what consequences.
Entrepreneurship is the process through which individuals and teams
create value by bringing together unique packages of resource inputs to
exploit opportunities in the environment. It can occur in any organisational
context and can result in a variety of possible outcomes, including new
ventures, products, services, processes, markets, and technologies.
Entrepreneurship encompasses acts of organisational creation, renewal,
or innovation that occur within or outside an existing organisation.

A true modern day entrepreneur, Sir Richard has a large number of demands on it. In
Branson, eloquently sums up much of what particular, South Africa needs to prioritise its
has been said about entrepreneurs when he spending on critical areas such as infrastructure
states that: and education.

“...entrepreneurs have been the driving force
for growth in countries around the world.
Their ability to see opportunities, to see order
amongst chaos where others see only issues,
problems and disorganisation, has helped
transform communities and economies.”
1.2 The South African
challenge
South Africa faces numerous economic,
political and social challenges in its new
democracy, of which a key challenge is that
of massive and growing unemployment. This
problem is especially evident amongst the
country’s youth, who more often than not lack
the experience, skills and education necessary
to access employment in the formal sectors.
These young people are forced to create their
own opportunities and to attempt to pro­­vide
their own form of employment. Given the ad­
ditional difficulties faced by the youth, name­ly
a lack of financial or business resources, many
young people are unable to find any form of
viable or legal employment. The growing body
of unemployed and increasingly unemployable
young people is placing an additional burden
on a limited government budget that already
Given the inability of the existing formal sector
to absorb the growing labour force, coupled with
the burgeoning youth unemployment crisis, the
government has prioritised small business and
entrepreneurial development.
Trevor Manuel, the former Minister of Trade and
Industry, clearly identified these issues as early as
the beginning of 1995:
“With millions of South Africans unemployed
and underemployed, the government has no
option but to give its full attention to the task of
job creation, and generating sustainable and
equitable growth.”
“Small, medium and micro enterprises repre­
sent an important vehicle to address the
challenges of job creation, economic growth
and equity in our country.”
“We believe that the real engine of sustainable
and equitable growth in this country is the
private sector. We are committed to doing all
we can to help create an environment in which
businesses can get on with their job.”
(Extracts from the White Paper
on Small Business)
New policy and institutional frameworks have
been introduced over the past fifteen years,
but the extent of the problem is so vast that

12
 Chapter 1: Why Entrepreneurship is Important
the government cannot tackle it alone.
Africa’s population of young people is
growing exponentially. According to a World
Bank report on youth and unemployment in
Africa (World Bank, 2008), youth currently
comprise 37% of the continent’s working-
age population, but they account for 60% of
the total unemployed. Statistics South Africa
estimates that about 40% of the South African
population is below the age of 20 and a further
19% between the ages of 20 and 30 (Mid-year
population estimates, 2008). In March 2007,
51% of respondents between the ages of 15
and 24 were unemployed (Labour Force Survey,
March 2007). This is significantly higher than
the country’s general unemployment rate.
During the latter half of 2008 and 2009 this
situation was further exacerbated by the fact
that South Africa, like most countries around
the world, slipped into recession. Business
closure has accelerated with the resultant
impact on job losses and large companies
are unable to create employment. In fact,
many of these companies are being forced
to unbundle. It is therefore a good time to
critically assess small business development
in South Africa and to attempt to answer a
number of key questions:
• What is happening?
• What should be happening?
• What roles can the different sectors play?
• Should new alliances be sought, for
example public-private partnerships for
areas where neither government nor
markets have been able to deliver on
their own?
These questions/issues will be reviewed in
greater detail in later chapters.
In spite of a growing number of papers and
articles that have been written about small,
medium and micro enterprises (SMMEs) in
South Africa, very little is really known about
them. According to a recent report in the
Sunday Times (20 September 2009), there
are 2,4 million registered companies in South
Africa of which 2,2 million are SMEs. However,
it is almost impossible to obtain accurate
statistics on each category (namely small and
medium), or on the various sectors in the
economy. This information is unavailable on
both a country-wide and provincial level. The
lack of accurate data hampers research as well
as the ability of government agencies and non-
governmental organisations to offer the correct
targeted assistance to businesses in the small,
medium and micro arena. The lack of data is
particularly noticeable amongst unregistered
businesses that employ either casual labour
or offer employment only to the owner. While
in many developed countries these businesses
are considered marginal in their contribution to
employment and GDP, in South Africa (as in
many developing countries) these informal and
micro enterprises are key to the livelihood and
survival of millions of people.
According to the 2008 Department of Trade
and Industry report (DTI, 2008), the SMME
sector grew by 27% between 2004 and 2007,
with the most significant growth associated
with medium-sized enterprises (208%). The
smallest growth occurred among micro
enterprises (-5.6%). Table 1.1 shows that the
provincial distribution differs significantly with
respect to formal/informal businesses.
Gauteng, the Western Cape and Northern Cape
are the only provinces where the percentage of
formal businesses is greater than the percentage
of informal businesses. The Northern Cape, on
the other hand, contributes an extremely small
number of businesses to the country’s total,
and the difference between formal/informal is
marginal. In most of the other provinces the
informal sector is approximately twice as large
as the formal sector.
13
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE

Table 1.1: Provincial distribution of SMMEs in the formal and informal sectors

Province Formal sector Informal sector

Eastern Cape 5.3% 13.4%
Free State 3.2% 6.6%
Gauteng 48.3% 24.6%
KwaZulu-Natal 13.0% 18.8%
Limpopo 2.9% 14.3%
Mpumalanga 4.1% 7.7%
North West Province 3.2% 8.0%
Northern Cape 1.2% 0.7%
Western Cape 19.0% 5.9%
Total 100% 100%

Although the DTI provides provincial data,
no breakdown exists as to the spread of
micro, small and medium enterprises and
little is known about the sectors in which they
operate. The National Skills Research Agency
indicated in their 2008 Annual Review of Small
Businesses in South Africa that certain business
sectors seem to have higher levels of SMME
activity, of which the financial intermediation,
insurance, real estate and business services
sector was the highest at 44.4%. Twenty
three percent of SMME activity occurs in the
wholesale and retail trade, repairs to motor
vehicles, motor cycles, personal goods,
household goods and hotels and restaurants,
while manufacturing accounts for only 11.3%.
1.3 Entrepreneurship and
development
It is widely acknowledged that entrepreneurship
is an important force in shaping the changes
that take place in the economic environment.
However, a full understanding of the relationship
between entrepreneurship and development
is still far from complete. Traditional analysis
of economic growth and competitiveness has
tended to neglect the role played by new
and small firms in the economy. The Global
Entrepreneurship Monitor (GEM) seeks to
better understand this complex relationship,
with specific reference to the SMME sector.
The Global Entrepreneurship Monitor has
found that in countries with low levels of per
capita income, the national economy tends to
be characterised by the prevalence of many
very small businesses. As the per capita income
increases, industrialisation and economies of
scale allow larger and established organisations
to satisfy the increasing demand of growing
markets and to increase their relative role in
the economy. These larger firms, because they
provide the necessary employment in the form
of more stable jobs, tend to result in a reduction
in new business start-ups. As there is not a
strong requirement for new start-ups, individuals
tend to be less entrepreneurial with regards to
opportunity entrepreneurship. Intrapreneurship,
or inno­vation within large established com­
panies, plays a more important role. There is
some evidence that entrepreneurial activity
rises as income per capita increases above US$
40 000. A possible explanation for this is that
as the number of individuals that can access
the necessary resources to go into business
for themselves increases, there is a greater
exploitation of business opportunities.
Institutional characteristics, culture, education,
the regulatory environment, national demo­
graphics and the social culture of the nation
all play a part in shaping the country’s entre­
preneurial landscape.

14
 Chapter 1: Why Entrepreneurship is Important
In South Africa, the overall levels of education
and training, social and cultural norms and the
regulatory environment play a highly significant
and potentially negative role in determining
the level of early-stage entrepreneurial activity.
The continued importance of education as an
identified limiting factor in South Africa is not
consistent with findings in other developing or
efficiency-driven economies where (as a limiting
factor) education does not play as significant a
role it does in South Africa.
GEM research has shown that South Africa
lags behind other developing countries
in promoting early-stage entrepreneurial
activity. In 2008, South Africa’s early-stage
entrepreneurial rate was 7.8% (Herrington et
al., 2008) – significantly behind the average of
13% for other middle to low income countries.
It is important to ask why South Africa’s early-
stage entrepreneurial rate is so low. What
factors have led to the low level of early-stage
entrepreneurial activity and what can be done
to improve it?
Studies in GEM over the years have
conclusively shown that the low level of early-
stage entrepreneurial activity in South Africa
is influenced by:
• A low level of overall education,
especially in maths and science.
• Social and entrepreneurial factors that
do not encourage entrepreneurship as a
career path of choice.
• A lack of access to finance, particularly
in the micro-financing arena.
• A difficult regulatory environment.
The recent world-wide economic crisis has had
a dramatic impact on economic development.
The effect on South Africa has been significant,
with over a million jobs lost during 2009.
With the high indebtedness of consumers, the
journey out of the crisis is likely to be long
and slow. The 2009 SME survey identified the
recession, a lack of financial and business
infrastructure, cash flow and high interest
rates, as well as the limited availability of
finance, as key concerns facing small business
development in South Africa. While many of
these issues are universal in being potential
hindrances, South Africa is additionally
disadvantaged by the lack of appropriate
education and high crime rates. South Africa
also suffers from a backlog in infrastructural
development that is due both to the legacy of
apartheid policies and the new government’s
inability to improve service delivery. Crime
still tops the list of key concerns facing small
businesses. The 2009 SME report indicated
that 66% of the SMEs surveyed rated the high
levels of crime as a primary concern, followed
by the global financial crisis (57%) and high
interest rates (51%). “Interest rates remain
a major issue because banks aren’t lending
money at lower rates,” noted Arthur Goldstuck,
managing director of the technology research
company World Wide Worx.
Of the 2 500 people who participated in the
survey, 20% of SMEs said they were profitable,
30% just profitable, 24% were breaking even
and 9% were either struggling, running at a
loss or just didn’t know.
Entrepreneurial development is important
for economic development, but for entre­
preneurship to be seen as a viable income-
generating activity it must be linked to
factors that influence confidence, a positive
perception of entrepreneurship and the desire
to take the risk necessary to start a new
business. A culture of entrepreneurship could
unleash the economic potential of all people in
South Africa, particularly the youth who need
to be provided with options that allow them to
actively contribute towards the economy.
“I believe that everyone is an entrepreneur
in so far as they have the ability and desire
to achieve great things and leave a legacy.”
(Adrian Gore: CEO and founder of
Discovery Health)
15
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE

16
Luvuyo’s story...
Entrepreneur gets Township Communities Surfing
the World Wide Web
When Luvuyo Rani opened an internet café
in Khayelitsha, many people told him he
was mad. Two years later, with customers
queueing up to make use of these precious
resources, he has proved his critics wrong.
In fact, his internet café in the new Khayelitsha
Mall cannot keep up with customer demand and
Rani is looking to expand his business both locally
and around the country.
SUCCESS SUMMARY
Luvuyo Rani's greatest accomplishment
in starting Silulo Ulutho Technologies
is having the insight to realise the huge
gap in the market for an IT service
business like his. He was passionate
about bringing computers and the
internet to people in the township of
Khayelitsha and bridging this digital
divide has proven to be a great formula
for success for him. He had great
ideas and an entrepreneurial spirit,
which he inherited from his mother.
After completing the Associate in
Management programme at the UCT
Graduate School of Business, he also
had the formal education needed to
take his business to great heights.
“There is such a high demand for the services we
offer here – printing, emailing, internet access and
other services to small businesses – that we are
struggling to keep up,” explains Rani. “Currently
we only have 15 PCs available, so during the
morning and afternoon rush you see people
queueing up for a free computer. There is a real
need to expand this business further and that is my
vision,” he adds.
An inspiration to the community, Luvuyo Rani’s
story is the ultimate rags-to-riches entrepreneurial
tale. In addition, his business is improving the lives
of many people in Khayelitsha who, without him,
would be left to watch the digital age pass them by.
“By opening up communities to the world of
computers and the internet we are offering people
the power of education and information, which is
priceless,” says Rani, who believes that the social
element of his business is just as important as his
own entrepreneurial success.
17
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE
Born and bred in the Eastern Cape, Rani came to
Cape Town in 1996 to study and pursue a career
in teaching. The entrepreneurial seed was always
present, however, as Rani had looked up to his
self-employed mother from a young age.
There is such a high
demand for the services
we offer here – printing,
emailing, internet access
and other services to
small businesses – that
we are struggling to
keep up. we only have
15 PCs available, so
during the morning and
afternoon rush you see
people queueing up for
a free computer.
“My mom ran a successful shebeen from home
when I was growing up and her flair for business was
a big influence on me,” says Rani. After graduating
from the Cape Peninsula University of Technology
with a National Diploma in Commercial Education,
and a BTech in Commercial Education, Rani
started teaching accounting and entrepreneurship
at a Khayelitsha high school while continuing to
study a BTech in Business Administration.
After three years he decided to take the risk and
resigned to start his business – Silulo Ulutho
Technologies – with his brother Lonwabo in 2004.
They started out by selling refurbished computers
and soon expanded to include basic IT training
and writing business plans and profiles for
local businesses.
“From my experience I knew that many teachers
in the area would buy computers, only for them
to become ornaments on their desks. There is a
massive IT skills gap in township communities,
18
which needs to be addressed if we want to
reduce unemployment in this country. Last year
we expanded the business and started a school
that provides computer training to the public – 12
hours a day, seven days a week – to help bridge
this gap a little bit,” explains Rani.
In the school’s first year 100 students completed the
six-month course and last year 140 people enrolled.
Rani and his partners are struggling to keep up
with demand with only 15 computers available for
teaching purposes – hence the long hours.
But Rani can be proud that most of the 100 people
from last year are now working.
“I am really happy that this business is having an
impact. We follow up with past students and find
that most of them are now working and putting
their new skills to good use,” he says.
In 2006 Rani was looking to improve his
own skills and enrolled on the Associate in
Management (AIM) programme at the UCT
GSB on a full Institute of Directors (IoD) bursary
to add some concrete business know-how to
his natural entrepreneurial flair. He maintains
that AIM prepared him to grow his business
with confidence.
“The AIM experience shaped me a lot,” says Rani.
“I was exposed to the full business environment and
can now plan my business strategy with confidence.”
Rani adds that the three arms of Silulo Ulutho
Technologies – training, retail and business
consulting – are now fully integrated and
operating successfully, thanks to his improved
business knowledge.
Silulo Ulutho Technologies now employs a total
of 10 people and Rani believes that this number
will grow.
“This year we plan to open one or two satellite
shops in the Khayelitsha area and I also want
to open two more internet cafes – one in
Queenstown and another in Mtatha in the Eastern
Cape,” says Rani, who is passionate about
increasing internet access and computer literacy in
impoverished areas.
Shirley’s story...
Discovering the Attitude Needed to Achieve Success

SUCCESS SUMMARY

After finding her true passion, Shirley Kotze started a business that would help her gain
both financially and emotionally. Today she owns a pre-school called Little Attitudes, a
place she has put her heart and soul into, and which gives her joy every day.

Shirley Kotze’s journey to becoming an
entrepreneur echoes so many other South
African stories of people who dream big
and make it. She always wanted to have her
own business but it took self-analysis and
self-discovery to uncover what she was truly
passionate about before she started on the
road to success.
And success is exactly what Kotze has achieved
today. She is the owner and manager of Little
Attitudes Pre-School in Meyerville, Standerton,
in Mpumalanga and has been providing a much
needed service in the area. Prior to Little Attitudes,
there was not one pre-school or crèche catering
to the needs of English-speaking children in
the area.

19
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE
This 35-year-old Standerton resident always
dreamed of owning a business where she would
be able to control her own time, see her own
vision come to life and be her own boss.
“I always felt that I had what it took to be an
entrepreneur, but I think in the beginning I was
going about it in the wrong way,” says Kotze.
Her first attempt at starting her own business was
to establish a graphic design studio. Kotze liked
and had some experience with sketching and
graphic design and thought that this would make
for an ideal business.
But it was not meant to be. “A couple of months
into it there was still no progress with the business.
I just didn’t have the motivation and I did not put
my heart and soul into it. I guess that is why it
failed,” she says.
After a few other disappointments, Kotze went
back to the drawing board and did some soul
searching. Her aim was to find out what would
really bring her joy and use that as the basis for
a new business.
“I wanted to be able to benefit both financially
and emotionally from the new business – so it
had to be something that I felt really passionate
about. That’s when the idea for Little Attitudes
came to me. I love children, and being able to
develop their skills and nurture them at an age
when they are most open to learning and new
experiences was something I felt positive I could
do and would enjoy,” says Kotze.
Once she knew what she wanted to do, she
decided that she could benefit from a business
planning course and sought the help of the
Centre for Innovation and Entrepreneurship at
the UCT Graduate School of Business.
The short course which she did in 2008 was an
initiative of Sasol, partnering with the CIE, called
the Sasol Business Plan Fast Track Programme.
“I’m so happy with what I have accomplished
with Little Attitudes, but I must say it wasn’t easy
getting started. We had endless problems in
getting the building up to scratch, applying for
20
and getting the necessary health documents and
other processes such as registering with social
welfare,” says Kotze.
She says that, unlike before, she now has passion,
drive and the confidence that she needs to tackle
any challenge.
I’m so happy with what
I have accomplished
with Little Attitudes, but
I must say it wasn’t easy
getting started. We had
endless problems in
getting the building up
to scratch, applying for
and getting the necessary
health documents and
other processes such as
registering with social
welfare.
Little Attitudes accommodates up to 50 children
and the pre-school takes in children from three
months up to five years of age.
These children are able to learn and play in a
stimulating and fun environment. Kotze says
that she is also thrilled at the fact that her
school is a source of employment for women in
the area.
“There are a lot of things to consider when
you start your own business, even one that is
not very big. At the end of the day you need
to be prepared to offer an excellent service
and that takes lots of sacrifice, long days and lots
of hard work,” says Kotze.
She adds that once you find what you’re most
passionate about, nothing can stop you from
achieving success.
 Chapter 2
The GEM Model
2.1 The GEM research
project
The Global Entrepreneurship Monitor (GEM)
research programme was initiated in 1997 as
a joint venture between academics at London
Business School and Babson College in the
United States. Its purpose was to explore and
assess the role of entrepreneurship in national
economic growth, through the creation of
relevant cross-national harmonised data sets on
an annual basis. Traditional analyses of economic
development and growth tend to focus primarily
on the contribution of large corporations. GEM,
on the other hand, recognises and takes into
account the roles played by new and small
businesses in the economy. In its attempt to
facilitate understanding of the relationship
between entrepreneurial activity and economic
growth, GEM has the following objectives:
• to allow for comparison of levels of
entrepreneurial activity among countries.
• to determine the extent to which entre­
preneurial activity influences economic
growth within individual countries.
• to identify factors which encourage and/or
hinder entrepreneurial activity.
• to guide the formulation of effective and
targeted policies aimed at stimulating
entrepreneurship.
The first GEM study was conducted in 1999,
with ten participating countries. In the ensuing
decade GEM has grown to a consortium of 64
national teams, and is now widely regarded as
one of the most important longitudinal studies
of entrepreneurship in the world. In 2009, 54
countries representing all the regions of the
world as well as varying levels of economic
development participated in the study. South
Africa joined the GEM project in 2001, and
has participated in all subsequent studies.
Although a report was published in 2007,
South Africa did not participate in the normal
cycle of the Adult Population and National
Expert surveys for that year. The monies
received from sponsors was, instead, spent
on conducting approximately 2 000 face-to-
face interviews with the youth of South Africa
in an attempt to ascertain why they are less
entrepreneurial than their counterparts in
other developing countries.
2.2 The GEM conceptual
model
Prior to the GEM project, most studies of
economic growth and competitiveness
emphasised the contribution of larger
established firms, on the assumption that these
firms were the main drivers of prosperity in
modern economies. The objective of the GEM
research programme – namely, to understand
the relative impact of entrepreneurship on
national economic development – necessitated
the design of “an explicit model of the relevant
variables and their role in the causal processes
affecting economic growth” (Reynolds et al.,
2005). GEM’s resultant conceptual framework
is represented in Figure 2.1.
The GEM model maintains that, at a national
level, the framework conditions that apply
to established business activity differ from
those that apply to entrepreneurial activity.
The performance of larger established firms
is influenced by general business conditions,
referred to as the General National Framework
Conditions. These factors influence firms’
ability to compete effectively, to start new
or ancillary businesses and to create jobs
(von Broembsen et al., 2005). An additional
set of factors, referred to as Entrepreneurial
Framework Condi­tions, influence individuals’
decisions to pursue entrepreneurial initiatives.
Both the national and the entrepreneurial
framework conditions are dependent on the
21
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE

social, political and economic context in which
they exist. These contexts are influential in
creating unique business and entrepreneurial
environments, and should therefore be taken
into account when analysing cross-national diffe­
rences and national developments over time.
The GEM conceptual model is a dynamic
entity that is progressively developed to incor­
porate advances in understanding of the
entrepreneurial process and to allow for further
exploration of patterns detected in previous
GEM studies. The 2009 GEM Executive Report
introduced a revised GEM model (see Figure
2.2) that relates the framework conditions
integral to the original GEM model to the
phase of economic development of individual
countries (Bosma and Levie, 2009).

General National
Framework Conditions
• Openness
(External Trade)
• Government Major Established Firms
(Extent, Role) (Primary Economy)
• Financial Markets
(Efficiency)
• Technology, R&D
(Level, Intensity)
• Infrastructure New
(Physical) Establishments
• Management
(Skills)
Micro, Small and
• Labour Markets
Medium Firms
(Flexible)
(Secondary Economy)
• Institutions
(Unbiased, Rule of Law) National
Economic
Social,
Growth
Cultural,
Political
Jobs and
Context
Technical
Innovation
Entrepreneurial
Entrepreneurial Opportunities
Framework Conditions

• Financial
• Government Policies
New Firms
• Government Programmes
• Education and Training
• R&D Transfer
• Commercial, Entrepreneurial
Legal Infrastructure Capacity
• Internal Market • Skills
Openness • Motivation
• Access to Physical
Infrastructure
• Culture, Social Norms

Figure 2.1: The GEM conceptual model (Adapted from the 2004 GEM Executive Report)

22
 Chapter 2: The GEM Model

Efficiency Enhancers

- Higher Education and

Training
- Goods Market Efficiency
- Labour Market Efficiency Established Firms
- Financial Market (Primary Economy) New Branches,
Sophistication Firm Growth
- Technological Readiness
- Market Size

From Other
Available Entrepreneurship
Sources
Basic Requirements
Attitudes:
Perceived Opportunities
- Institutions
Perceived Capacity
- Infrastructure
- Macroeconomic Stability National
- Health and Activity: Economic
Primary Education Early-Stage Growth
Social, Persistence (Jobs and
Cultural, Exits Technical
Political Innovation)
Context
Aspirations:
Innovation and Growth
Entrepreneurship Innovation
Social Value Creation
- Entrepreneurship Finance
- Government Policies From GEM
- Government Adult
Entrepreneurship Population
Programmes Surveys (APS)
From GEM
National - Entrepreneurship Education
Expert Surveys - R&D Transfer
- Commercial, Legal
Infrastructure for
Entrepreneurship
- Internal Market Openness
- Physical Infrastructure for
Entrepreneurship
- Cultural, Social Norms

Figure 2.2: The revised GEM model (Source: 2009 GEM Executive Report)

Countries participating in GEM are classified
as factor-driven economies, efficiency-driven
economies or innovation-driven economies,
in line with the categories used in the
Global Competitiveness Report 2009-2010.
This classification into phases of economic
develop­ment is based on the level of GDP per
capita and the extent to which the countries are
factor-driven in terms of the shares of exports
of primary goods in total exports (Schwab
and Sala-i-Martin, 2009). Although all three
types of economic activity are present in all
national economies, their relative prevalence
– and contribution to economic development
– varies. The Global Competitiveness Index
(see Figure 2.3) identifies 12 pillars of
competitiveness. These will affect countries
differently, depending on the stage of economic
development at which the countries are, i.e.
although all of the pillars will be important to
each economy, the pillars of competitiveness
which are of most importance to a factor-driven
economy will differ from those that will be most
important in an efficiency-driven economy.

23
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE
Basic requirements
• Institutions
• Infrastructure
• Macroeconomic stability
• Health and primary education
Efficiency Enhancers
• Higher education and training
• Goods market efficiency
• Labor market efficiency
• Financial market sophistication
• Technological readiness
• Market size
Innovation and sophistication factors
• Business sophistication
• Innovation
Figure 2.3: 12 pillars of competitiveness (Source: Global Competitiveness Report 2008 -2009)
Bosma et al. (2008) postulate that the relative
importance of the entrepreneurial framework
conditions to a country may well also vary by
phase of economic development. Given that this
is a relatively new trend in GEM methodology,
their discussion of entrepreneurship in the
three phases of economic development is
reproduced below:
• Entrepreneurship in factor-driven
economies:
Countries with low levels of economic
development typically have a large agri­
cultural sector, which provides subsistence
for the majority of the population who
mostly still live in rural areas. The situation
changes as industrial activity begins to
develop, often around the extraction of
natural resources. This triggers economic
growth, prompting surplus population
from agriculture to migrate towards
extractive and emergent scale-intensive
24
Key for
factor-driven
economies
Key for
efficiency-driven
economies
Key for
innovation-driven
economies
sectors, which are often located in specific
regions. The resulting oversupply of labour
feeds necessity-based entrepreneurship in
regional agglomerations, as the surplus
workers are forced into self-employment
in order to make a living. As indicated in
Figure 2.2, emphasis is placed on basic
requirements such as infrastructure, health
and primary education. Although these basic
requirements will help to sustain necessity-
based entrepreneurship, they may do little
to enable opportunity-based enterprises.
• Entrepreneurship in efficiency-driven
economies:
As the industrial sector develops further,
pursuit of higher productivity through eco­
nomies of scale becomes increasingly pre­­
valent. Typically, national policies in scale-
intensive economies shape their emerging
economic and financial institutions to favour
large national businesses. As increasing
 Chapter 2: The GEM Model
productivity contributes to financial capital
formation, however, niches may open up in
industrial supply chains that service these
national incumbents. This, combined with
the opening up of an independent supply of
financial capital from the emerging banking
sector, expands opportunities for the
development of small-scale and medium-
sized manufacturing sectors.
• Entrepreneurship in innovation-
driven economies:
As an economy matures and its wealth
increases, a gradual shift in emphasis may
occur towards an expanding service sector
that caters to the needs of an increa­singly
affl­­uent popu­­lation. The industrial sector
evolves and experiences improvements in
variety and sophistication. This is typically
ass­o­­c­iated with increasing research and
dev­el­­opment as well as knowledge intensity,
which opens the way for the development
of innovative, opportunity-seeking entre­
preneurial activity. In these economies,
small and innovative entre­­preneurial firms
often enjoy an innovation productivity
adv­­­­a­­ntage over large established firms.
Framework conditions that support oppor­
tunity-driven entrepreneurship are of parti­
cular importance in helping innovation-
driven economies to achieve their growth
ambitions.
The revised model also acknowledges entre­
preneurial attitudes, activity and aspiration as
dynamic interactive components of national
entrepreneurial environments. The adult popu­
lation survey does include questions relating to
all three of these components, and the revised
model focuses attention on the extent to which
these factors reinforce one another in different
phases of economic development.
2.3 How GEM measures
entrepreneurship
One of the primary objectives of GEM is to mea­
sure entrepreneurial activity in a way that allows
for meaningful cross-national as well as intra-
country comparisons over time. The standard
option of looking at official new firm registration
figures is therefore not useful in this context.
As noted by Driver et al. (2001), this would not
accurately reflect different levels of informal
business activities in the countries concerned.
In addition, the influence of varying legal and
institutional conventions in different countries
could skew interpretation of the data in cross-
country comparisons.
In line with its objectives, then, GEM focuses on the
role played by individuals in the entrepreneurial
process. Every person engaged in any behaviour
related to new business creation, no matter how
modest, is regarded as having an impact on the
national level of entrepreneurship.
Another important feature of the GEM model is
that it is concerned with entrepreneurship as a
process. Figure 2.4 presents an overview of the
entrepreneurial process and the GEM operational
definitions. The GEM survey collects data on
people in the process of setting up new businesses
as well as those who own and manage running
businesses. It therefore captures information on
entrepreneurial attitudes, activity and aspirations in
different phases of entrepreneurship, from general
intentions through early-stage entrepreneurial
activity to status as established firms. The primary
measure of entrepreneurship used by GEM is the
Total Early-stage Entrepreneurial Activity (TEA)
index, indicated by the shaded area in Figure 2.4.
TEA indicates the prevalence of business start-
ups (or nascent entrepreneurs) and new firms in
the adult (18 to 64 years of age) population –
in other words, it captures the level of dynamic
entrepreneurial activity in a country.
A primary objective of GEM is to explore
differences in national levels and types of
entrepreneurship and to link these to job
creation and economic growth. Interviewees
are therefore asked about their motivation for
starting a business. A distinction is made between
those who are motivated primarily by a lack
of other options for making a living (necessity
entrepreneurship) and those who are starting a
business to take advantage of an opportunity
(opportunity entrepreneurship). In line with this
qualitative approach, interviewees are also
asked questions on market innovativeness and
expected employment growth.
25
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE

Early-stage Entrepreneurial Activity (TEA)

Potential Nascent Owner-manager Owner-manager

entrepreneur: entrepreneur: of a new business of an established
opportunities involved in setting (up to 3.5 years old) business (more than
knowledge, and skills up a business 3.5 years old)

ConceptionF nFirm birth Persistence

Figure 2.4: The entrepreneurial process and GEM operational definitions

2.4 GEM methodology into the entre­preneurial start-up envir­

In order to provide for reliable comparisons
across countries, GEM data is obtained using
a research design that is harmonised over all
participating countries. The data is gathered on
an annual basis from two main sources:
onment in each country (the nine Entre­
preneurial Framework Conditions indi­
cated in the GEM model in Figure 2.1).
GEM provides a number of criteria which
must be met when selecting experts,
in order to construct a balanced and
representative sample:

• An adult population survey (APS) • Four experts from each of the

This data set is a survey of the adult popu­
lation, namely people between the ages of
18 and 64 years. Each of the participating
countries conducts the survey among a
random representative sample of at least
2000 adults. The surveys are conducted at
the same time of year (generally between
April and June) using a standardised
questionnaire provided by the GEM
consortium. In the interests of maximum
uniformity and control, the international
GEM project team contracts directly with
each country’s chosen APS vendor. The raw
data is sent directly to analysts at London
Business School for checking and uniform
statistical calculations before being made
available to the participating countries.
• Data from national experts (NES)
The national experts’ survey is an important
com­p­onent of GEM as it provides insights
entrepreneurial framework condition
categories must be interviewed, making
a total of 36 experts per country.
• A minimum of 25% must be entre­
preneurs or business people, and 50%
must be professionals.
• Additional aspects such as geo­
graphical distribution, gender, the
public versus private sector, and level
of experience should also be taken into
account when balancing the sample.
• Additional sources of data
In addition to the annual surveys, GEM also
makes use of standardised national data
from international data sources such as the
World Bank, the International Monetary
Fund and the United Nations. These data
are used to determine the relationship
between entrepreneurial activity and
national economic growth.

26
Pierre’s story...
Bug Man’s IT Business Evolves to Take Flight
SUCCESS SUMMARY
Pierre Janssens started his career as a
scientist, but today runs a successful
IT business, Soft Craft Systems. For
Janssens, seeing an opportunity and
being in the right place at the right time
sparked his success, but he points to
having the right business skills as key to
growth and sustainability.
During his years of studying animal and plant
life, Pierre Janssens never imagined that he
would one day start his own IT business. The
successful entrepreneur left his scientific
background to take advantage of the IT
boom in the late 1990s and his Cape Town
business has been growing ever since.
Now, since graduating with an MBA from the UCT
Graduate School of Business (GSB) in 2003,
Janssens’ business has experienced a change of
direction and exponential growth.
Janssens started Soft Craft Systems, a software
and survey platform development company, in
1996. Although he was interested in computers,
he had no formal training in IT or entrepreneurship
and admits that he took a risk when he decided to
establish Soft Craft with a friend.
“In those days IT was the darling of the world
and people were throwing money at companies
involved in the industry. Our very first job was to
27
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE
build a database for all the published literature
on fresh water animals and their environmental
conditions. Luckily, the business grew pretty
quickly from that point on.”
In the years before Soft Craft, Janssens immersed
himself in the world of biology: researching,
collecting and analysing data. He graduated
from Pretoria University in 1990 with a Bachelor
of Science in Biochemistry and Zoology before
studying for his Honours in Marine Biology at the
University of Cape Town. In 1994 he obtained
a Masters of Science in Insect Physiology, also
from UCT.
My university studies
have given me the
edge as I was trained
to be methodical and
thorough in everything
that I do.
Janssens maintains that his scientific background
has been a tremendous advantage in building
his business.
“Science relates very well to IT,” says Janssens.
“My university studies have given me the edge as
I was trained to be methodical and thorough in
everything that I do.”
Despite the success of Soft Craft in its early
years, however, Janssens sometimes felt out of
his depth in the business world.
He decided to embark on an MBA at the UCT GSB
on a part-time basis in 2002/ 2003, an experience
that he describes as a turning point in his life
and career.
“The MBA helped me focus my skills and has
given me confidence and a real belief in myself,”
he says.
Since completing the MBA Janssens has split Soft
Craft into two separate sections. One focuses on
software development and the other, newer part
focuses on creating survey platforms for businesses.
28
“I’m proud of the survey platforms we have
created. Our first big client was Old Mutual
and we also conducted staff and value surveys
for Nedbank.”
Janssens is currently spending most of his energy
on developing the survey platform aspect of
Soft Craft. He maintains that the results of
the electronic surveys are often surprisingly
illuminating and of great worth to companies
who want to improve anything from operations
to staff satisfaction.
While Janssens is himself convinced of the value
of this product, the challenge for Soft Craft is
to market the survey platforms and convince
companies that conducting surveys will be well
worth their while.
“I want to do with the survey business what
companies like Kulula have done with flying:
bring it to the people and make it widely
accessible,” says Janssens. “Companies can
utilise our generic survey platforms or we can
customise one for them in order to get the
specific kinds of information they require.
“One of the best aspects of what we do is the way
we present the information to clients. We aim to
make sense of the results and their implications
rather than just dump the data on them and
leave them to figure out what it all means,”
explains Janssens.
He maintains that a key reason for Soft Craft’s
success has been its dedicated network of spe­
cialists and suppliers. They excel in the disciplines
of strategy formulation, change management,
organisational design and develop­m ent, remune­
ration and benefits, performance manage­m ent,
client satisfaction and market research and are
responsible for making sense of the research that
Soft Craft conducts.
“Since completing my UCT MBA I have the
knowledge and skills to take this business
forward and make an even bigger success
out of it. We have discovered a niche in the
market and plan to continue creating quality
custom-designed software systems and survey
platforms in order to take advantage of
this opportunity.”
Nadia’s story...
Inspiring Entrepreneur Driven by Passion for
Uplifting Others
SUCCESS SUMMARY
Nadia Mason did many things right in
her quest to build a successful business.
Setting goals with timelines and being
committed to achieving them helped
her get Nadia Mason Personnel
started. Her dedication, passion and
her commitment to getting the right
skills have made all the difference and
she has the awards to show for it.
Nadia Mason, who has defied the odds
to become a successful, award-winning
entrepreneur while not having a tertiary
qualification, says she always felt she had
unfinished business with education. With a
top management qualification from the UCT
Graduate School of Business now under her
belt, her business – Nadia Mason Personnel
– is experiencing a growth spurt and the
launch of a bold new service offering called
‘Corporate Evolution’.
Many have said that the key to success lies in having
goals and setting timelines to achieve them. Nadia
Mason, Founder and Managing Director of Nadia
Mason Personnel, would definitely agree. The
seed of her flourishing business was planted over
25 years ago when she set herself a goal to start
her own business within ten years of matriculating
– and then met her deadline just in time!
Mason has experienced the taste of success several
times during the 19 years since she founded Nadia
Mason Personnel. Among her greatest accolades
are becoming the first woman to win the Western
Cape Business Opportunities Forum (WECBOF)
Business Person of the Year Award in 2000 and
being first runner-up in the Black Management
Forum (BMF) Manager of the Year Award in 1999.
So what is her formula for success?
Mason puts it down to the collective effort of
her dedicated team. However, it has also been
said that every great team needs a great leader
– and that is a most befitting description for this
passionate entrepreneur.
“When I started Nadia Mason Personnel in 1991,
it was a one-man show,” says Mason. “I now
29
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE
employ 20 people – 80% of them women from
previously disadvantaged backgrounds.”
Her career path in recruitment began in 1986
when she started working for Status Personnel – a
Cape Town-based recruitment company.
“After five years at Status Personnel my 10-year
mark was fast approaching,” says Mason. “My
husband encouraged me to pursue my dream and
I decided to take the risk.”
With no tertiary education or real business know­
ledge, Mason was taking a risk when she set up
her own recruitment company. Her determination
and passion for transformation, however, saw her
through the difficult early stages and allowed her
to grow the business step-by-step.
I now employ 20 people –
80% of them women from
previously disadvantaged
backgrounds.
By 2000, Nadia Mason Personnel was respected
and established enough as a business to win
the largest recruitment contract in the history of
the Western Cape – the GrandWest Casino and
Entertainment World mass recruitment tender.
“That experience really changed my approach
to business,” explains Mason. “We went in with
a fully fleshed-out project plan and that is what
won us the contract. I subsequently set up a mass
recruitment division within the company and
was able to grow Nadia Mason Personnel as a
direct result.”
Despite all these achievements, however, Mason
always felt there was something missing for her – a
tertiary qualification.
Mason enrolled on the Post Graduate Diploma in
Management (PGDip) in Management Practice
programme at the UCT Graduate School of
Business – an accredited course offered by the
Customised Academic Learning division of the
School – in 2006.
The division’s tailored offerings for the Services
30
SETA include two general management
development programmes, one aimed at the
middle management level and the other at the
senior management level, as well as a programme
specifically geared to building skills in the event
management sector.
Mason says the experience made her a better
leader and streamlined her entire business.
“The ‘systems thinking’ approach of the
programme has enabled me to acquire a better
grasp of the whole business. Previously I looked
at everything separately; now I see that all
elements of the business work together and
are interrelated.
My business acumen has also grown and I no
longer have the fear for numbers that I used
to,” she says. “I feel more confident and more in
control of each aspect of my business.”
Mason has every reason to feel confident – she
graduated from the programme with distinction
and is currently considering the Executive MBA at
the UCT GSB as a further challenge.
Nadia Mason Personnel has gone from strength to
strength since Mason completed the programme
and is now branching out into a new arena
of business with a unique product offering for
the corporate world – a product Mason calls
‘Corporate Evolution’.
“With ‘Corporate Evolution’ we plan to address
the toxicity that has crept into organisations in
recent times by healing the spirit and energy of
individuals and businesses. The toxicity I refer
to manifests itself in low morale, corporate
exhaustion and increased absenteeism, stress and
even illness.”
This enthusiasm for transformation characterises
everything Mason has done in her business for
the past decade and a half. Her company is
committed to finding employment for people from
previously disadvantaged backgrounds – who
make up around 80% of its placements.
“I see myself as an entrepreneur and a change
agent,” says Mason. “I am truly passionate about
transformation and establishing equality in the
work place – and have always tried to lead by
example with my own business.”
 Chapter 3
A Summary of GEM South Africa 2001 - 2008
3.1 Introduction
South Africa’s economy has historically been
dominated by large corporations and the public
sector. During the apartheid era, there was a
conspicuous absence of small businesses in the
dominant sectors of the economy and very little
attention was paid to small enterprise promotion
in public policy. During the apartheid era, black
South Africans, except in specially designated
areas, were largely prevented from owning
property. This meant that they were unable to
leverage their property as a form of finance,
which had a negative effect on their ability to start
businesses. Following the advent of democracy
in 1994, the corporate sector underwent massive
restructuring. Jobs in the formal sector were shed
while the informal sector grew – though more
out of necessity than out of real opportunity. The
lack of formal employment and high levels of
informal growth posed major challenges to the
new government, and for the past 15 years small
business development and job creation have
been a priority which has been addressed with
varying degrees of success and failure.
South Africa’s unemployment and poverty
levels remain, by international standards, dis-
proportionally high for a country with a rela-
tively high level of per capita income. Growth,
job creation and poverty alleviation are thus
pressing priorities, both economically and po-
litically. Entrepreneurship and small business
development has received growing attention
by researchers, both locally and in the inter-
national arena.
Over the past 20 years, the concept and practice
of entrepreneurship has received increasing
emphasis internationally. Locally, several studies
of the small business sector in South Africa
have been conducted but, to the best of our
knowledge, the 2001 GEM Report (Driver et.al.,
2001) was the first study of entrepreneurial
activity amongst all South Africans.
3.2 The Global
Compe­titiveness Index
Before looking at information provided by the
GEM reports, it will be of value to take a brief
look at where South Africa stands with regards
to the Global Competitiveness Index and to
determine what has changed materially over
the period from 2002 to 2008. The results of
relevant indices for these years are given in
Tables 3.1, 3.2 and 3.3 (source: The Global
Competitiveness Report 2003-2004 and 2009-
2010 ©, World Economic Forum).

Table 3.1: Global Competitiveness Report comparisons for South Africa – 2002 versus 2008

2002 2008
Number of countries participating 102 133
Institutions: • business cost of crime and violence 96 133
• public trust of politicians 35 65
• reliability of police services 86 106
• diversion of public funds 47 56
• property rights 31 20

Health: • business impact of HIV/Aids 100 133

Finance: • ease of access to loans 34 31

Infrastructure: • telephone lines 65 91

• quality of electricity supply 24 100

31
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE
Table 3.1 indicates that in a number of key areas,
South Africa’s performance has weakened
considerably since 2002. The decrease in
ranking with respect to crime, the reliability
of police services and the diversion of public
funds is of particular concern. These elements
impact on the impression that overseas funders
have of the country and do not improve our
chances of increasing our share of foreign
direct investment. The decrease in ranking
with respect to infrastructure, and particularly
the supply of electricity, is also of concern.
The loss of income and business confidence,
as well as the number of small businesses that
were unable to survive the protracted electricity
supply outages in 2008/9, seriously dented
South Africa’s international appeal.
Other areas of concern highlighted in the
2009–2010 Global Competitiveness Report, but
for which there is no direct comparison between
2002 and 2008, are summarised in Table 3.2,
while Table 3.3 summarises the areas in which
South Africa excelled.
Table 3.2: South African indices for 2008
(ranking out of 133 countries):
poor perfor­mance
• organised crime 119
• quality of primary education 107
• quality of maths and science 133
education
• quality of education system 119
• internet access in schools 100
• tertiary enrolment 94
• hiring and firing practices 125
• pay and productivity 105
• availability of scientists and engineers 123
The areas of extremely poor performance in
South Africa are also areas that would increase
the cost to businesses that operate in South
Africa. The poor quality of education means
that many employers are faced with hiring
staff that, due to their poor education, are
more difficult to train. The lack of education
also impacts on productivity, which increases
the cost of hiring. The lack of flexibility in the
labour market again imposes a cost on small
businesses, either by limiting their opportunity
to hire contract labour or preventing them from
easily firing non-performing employees. Crime
32
is an additional tax on all businesses but small
businesses, many with low margins, can least
afford this additional cost.
South Africa excelled in certain areas,
namely the sophistication of the banking and
accounting professions. These rankings show
that South Africa has a tier of its business
society that is comparable to the best in
the international community. However, the
sophistication in financial markets, soundness
of banks and excellence in accounting
standards are unlikely, on their own, to create
an environment conducive to small business
development. This excellence is currently a
stark reminder of the dual economy in South
Africa, where internationally comparable
business sectors operate next to survivalist
businesses which are struggling with a lack of
access to the necessary skills, infrastructure
and financial assistance. For South Africa to
achieve sustainable and equitable economic
development, individuals and businesses
that are excluded from the upper tier of the
economy will need to be uplifted. In addition,
areas identified as being extremely poor i.e.
education and infrastructure will need to
be prioritised.
Table 3.3: South African indices for 2008
(ranking out of 133 countries):
good performance
• strengths of auditing and reporting 2
standards
• protection of minority shareholder 9
interests
• financial market sophistication 6
• legal rights interest 5
• soundness of banks 6
Respondents were provided with a list of
14 factors and asked to select the five most
problematic areas for doing business in
their country, then to rank them from 1 (most
problematic) to 5 (least problematic). Table
3.4 shows the responses for 2002 and 2008 in
order of importance, as well as the responses
weighted according to their rank. For example,
in 2002 an inadequately educated workforce
was considered number 1 in priority and
corruption number 10.
 Chapter 3: A Summary of GEM South Africa 2001 - 2008
Table 3.4: Most problematic areas for doing business in South Africa, 2002 versus 2008
• inadequately educated workforce
• crime and theft
• restrictive labour regulations
• poor work ethic in national labour force
• inefficient government bureaucracy
• access to financing
• corruption
• inadequate supply of infrastructure
Table 3.4 shows that access to finance is
not seen as the most problematic inhibitor
for doing business. Crime and theft, an
inadequately trained workforce coupled with
restrictive labour regulations, and inefficient
government bureaucracy were all identified
as greater hindrances to doing business in
South Africa. The labour regulations could
be changed relatively quickly, but it is unlikely
that this process could be completed without
considerable conflict between government
and organised labour. Improving education
remains a priority and it is therefore of
growing concern that the recent matric
results have, once again, shown a decline.
Of further concern are the dismal results in
mathematics and science. It is critical that
the quality of education is reprioritised and
that teacher training and school leadership
are acknowledged as the cornerstones of
improved education.
3.3 Key findings and
recommendations
from the GEM South
African executive
reports
3.3.1 Entrepreneurial activity in
South Africa 2001 - 2008
South Africa joined the GEM consortium
in 2001 and has consistently published
comprehensive reports detailing the key findings
derived from the Adult Population Survey (APS)
2002 2008
1 (21%) 2 (16%)
2 (19%) 1 (19%)
3 (17%) 4 (12%)
4 (10%) 7 (5%)
5 (7%) 3 (14%)
6 (6%) 5 (9%)
10 (2%) 6 (7%)
13 (2%) 8 (4%)
and National Experts Survey (NES). The 2002
report acknowledged a growing consensus
within South Africa about the importance
of entrepreneurship as a factor impacting
on economic development. In 2002, South
Africa was still ranked as one of the lowest of
all developing countries involved in GEM. For
example, South Africa was ranked as 15th out
of 37 in start-up activity and 29 th in new firm
activity, with only 2% of the adult population
being involved in new firms. South Africa ranked
in the lowest quartile of all GEM countries
in two key measures, namely opportunity
entrepreneurship and new firm activity. Total
early-stage entrepreneurial activity (TEA)
rates in South African were particularly low –
approximately half of what the TEA rates were
in other developing countries (2003). South
Africa’s TEA rate remained unchanged in 2005,
and was still the lowest of all the developing
countries participating in the GEM survey. Not
only was the rate of necessity entrepreneurship
(2.05%) extremely low but, more importantly,
the opportunity rate (2.95%) remained the
lowest of all the developing countries. In 2006,
despite improved macro-economic conditions
in the country and the fact that its TEA indices
had remained relatively constant over time,
South Africa’s position in the GEM rankings was
shown to have deteriorated (Table 3.5).
Tables 3.6 to 3.9 indicate the longitudinal
results of several key indicators: TEA rates;
opportunity and necessity rates; and start-up,
new firm and established business activity.
Table 3.6 shows the early-stage entrepreneurial
rates (percentage of the adult population who
have started or are in the process of starting a
business) across 76 GEM countries who have
participated in the survey since 2001.
33
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE

Table 3.5: Relative rankings from 2001 – 2006 (Source: GEM 2001 – 2005)

2001 2002 2003

South Africa’s TEA ranking 14th out of 28 20 th out of 37 22nd out of 31
countries countries countries
South Africa’s TEA rate 9.4 6.3 4.3
Median 14 19 16
Number of positions below median 0 1 6
2004 2005 2006
South Africa’s TEA ranking 20 th out of 34 25th out of 34 30 th out of 42
countries countries countries
South Africa’s TEA rate 5.4 5.15 5.29
Median 17 17 21
Number of positions below median 3 8 9

Table 3.6: Early-stage entrepreneurial rates (% TEA) across GEM countries

Country 2001 2002 2003 2004 2005 2006 2007 2008 2009
Factor-driven economies (middle to low income)
Algeria 16.7
Angola 22.7
Bolivia 29.8
Egypt 13.1
Guatemala 26.8
India 11.6 17.9 10.4 8.5 11.5
Jamaica 17.0 20.3 15.6 22.7
Kazakhstan 9.4
Lebanon 15.0
Morocco 43.7
Puerto Rico 3.1
Philippines 20.4
Saudi Arabia 4.7
Syria 8.5
Tonga 17.4
Uganda 29.3 31.6 33.6
Venezuela 27.3 25.0 20.2 18.7
Yemen 20.0
AVERAGE 11.6 17.9 28.3 31.6 21.0 17.0 10.3 18.5 20.5
Efficiency-driven economies (middle to low income)
Argentina 11.1 14.2 19.7 12.8 9.5 10.2 14.4 16.5 14.7
Bosnia & Herzegovina 9.0 4.4
Brazil 12.7 13.5 12.9 13.5 11.3 11.7 12.7 12.0 15.3
Chile 15.1 16.9 11.1 9.2 13.4 14.1 14.6
China 12.3 11.6 13.7 16.2 16.4 18.8
Columbia 22.5 22.7 24.5 22.4

34
 Chapter 3: A Summary of GEM South Africa 2001 - 2008

Country 2001 2002 2003 2004 2005 2006 2007 2008 2009
Efficiency-driven economies (middle to low income)
Croatia 3.6 2.6 3.7 6.1 8.6 7.3 7.6 5.6
Dominican Republic 16.8 20.4 17.5
Ecuador 27.2 17.2 15.8
Hungary 11.4 6.6 4.3 1.9 6.0 6.9 6.6 9.1
Indonesia 19.3
Iran 9.2 12.0
Jordan 18.3 10.2
Latvia 6.6 6.6 4.5 6.5 10.5
Macedonia 14.5
Mexico 20.7 12.4 5.9 5.3 13.1
Malaysia 11.1 4.4
Panama 9.6
Peru 40.3 40.2 25.9 25.6 20.9
Poland 10.0 4.4 8.8
Romania 4.0 4.0 5.0
Russia 6.9 2.5 4.9 2.7 3.5 3.9
Serbia 8.6 7.6 4.9
South Africa 9.4 6.5 4.3 5.4 5.1 5.3 7.8 5.9
Taiwan 4.3
Thailand 18.9 20.7 15.2 26.9
Tunisia 9.4
Turkey 6.1 5.6 6.0
Uruguay 12.6 12.2 11.9 12.2
AVERAGE 11.7 8.3 11.3 14.9 9.1 12.6 12.3 11.8 11.2
Innovation-driven economies (high income)
Austria 5.3 2.4
Australia 15.5 8.7 11.6 13.4 10.9 12.0
Belgium 4.5 3.0 3.9 3.5 3.9 2.7 3.2 2.9 3.5
Canada 11.0 8.8 8.0 8.9 9.3 7.1
Czech Republic 7.9
Denmark 8.0 6.5 5.9 5.3 4.8 5.3 5.4 4.4 3.6
Finland 7.7 4.6 6.9 4.4 5.0 5.0 6.9 7.3 5.2
France 7.4 3.2 1.6 6.0 5.4 4.4 3.2 5.6 4.3
Germany 8.0 5.2 5.2 4.5 5.4 4.2 3.8 4.1
Greece 6.8 5.8 6.5 7.9 5.7 9.9 8.8
Hong Kong 3.4 3.2 3.0 10.0 3.6
Iceland 11.3 11.2 13.6 10.7 11.3 12.5 10.1 11.4
Ireland 12.2 9.1 8.1 7.7 9.8 7.4 8.2
Israel 5.7 7.1 6.6 5.4 6.4 6.1
Italy 10.2 5.9 3.2 4.3 4.9 3.5 5.0 4.6 3.7

35
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE

Country 2001 2002 2003 2004 2005 2006 2007 2008 2009
Innovation-driven economies (high income)v
Japan 5.2 1.8 2.8 1.5 2.2 2.9 4.3 5.4 3.3
Netherlands 6.4 4.6 3.6 5.1 4.4 5.4 5.2 5.2 7.2
New Zealand 18.1 14.0 13.6 14.7 17.6
Norway 8.8 8.7 7.5 7.0 9.2 9.1 6.5 8.7 8.5
Portugal 4.0 8.8
Republic of Korea 14.9 14.5 10.0 7.0
Singapore 6.6 5.9 5.0 5.7 7.2 4.9
Slovenia 4.6 4.1 2.6 4.4 4.6 4.8 6.4 5.4
Spain 8.2 4.6 6.8 5.2 5.7 7.3 7.6 7.0 5.1
Sweden 6.7 4.0 4.1 3.7 4.0 3.5 4.2
Switzerland 7.1 7.4 6.1 6.3 7.7
United Arab Emirate 3.7 8.4 13.3
United Kingdom 7.8 5.4 6.4 6.3 6.2 5.8 5.5 5.9 5.7
United States 11.6 10.5 11.9 11.3 12.4 10.0 9.6 10.8 8.0
AVERAGE 9.2 6.7 6.4 6.4 7.0 6.1 6.3 6.6 6.2
All GEM countries 9.9 8.0 8.8 9.4 8.4 9.5 9.1 10.6 11.3
(average TEA)
Number of countries 28 37 31 34 35 42 42 42 54
participating

The TEA rates for most countries have remained countries (8.3 – 14.9) and well below the average
fairly stable over this period. South Africa’s TEA of factor-driven economies (10.3 – 31.6). This
(ranging from 4.3 – 9.4) remained consistently is of obvious concern, given the extremely high
below the average of the efficiency-driven levels of unemployment in South Africa.

36
 Chapter 3: A Summary of GEM South Africa 2001 - 2008

Table 3.7: Opportunity versus necessity entrepreneurial activity for efficiency-driven

economies

Country 2001 2002 2003 2004 2005 2006 2007 2008 2009
Argentina Opportunity 5.2 6.5 12.1 9.0 6.2 7.3 8.7 9.9 7.3
Necessary 3.9 7.0 7.4 3.7 2.9 2.6 4.7 6.3 6.9
Angola* Opportunity 10.6
Necessary 8.0
Brazil Opportunity 5.7 5.6 6.9 7.0 6.0 6.0 7.2 8.0 9.4
Necessary 4.2 7.4 5.5 6.2 5.3 5.6 5.3 4.0 5.9
Chile Opportunity 8.5 10.3 8.1 6.6 9.8 9.0 10.9
Necessary 6.7 5.8 2.9 2.6 3.2 3.6 3.8
China* Opportunity 5.5 5.4 7.2 9.4 9.8 9.4
Necessary 6.8 5.8 6.2 6.2 6.2 9.0
Croatia Opportunity 2.2 1.7 2.0 2.8 4.4 4.2 5.4 3.0
Necessary 0.7 0.6 1.4 2.9 3.6 2.9 2.2 2.1
Hungary Opportunity 5.8 3.8 2.7 1.0 4.6 5.0 4.4 6.5
Necessary 2.3 1.9 1.2 0.7 1.3 1.6 1.9 2.2
Peru Opportunity 26.4 29.1 17.6 17.0 14.7
Necessary 12.9 10.5 8.2 8.0 5.8
Russia Opportunity 3.7 1.7 3.1 1.9 2.5 2.6
Necessary 0.8 0.5 1.4 0.5 0.7 1.1
South Opportunity 2.8 3.1 2.7 2.6 2.9 3.3 6.1 3.8
Africa Necessary 0.8 2.1 1.3 2.4 1.9 1.4 1.6 1.9
Uganda* Opportunity 16.5 16.6 18.4
Necessary 11.9 14.2 15.1
Uruguay Opportunity 7.7 7.7 7.9 9.1
Necessary 4.4 3.8 2.8 2.7

* Factor-driven economies

Table 3.7 shows the relationship between
opportunity and necessity entrepreneurial
activity for efficiency-driven countries. South
Africa’s level of necessity entrepreneurship is
surprisingly low, again considering the high
levels of unemployment.
One would expect the level of necessity-
motivated entrepreneurship to be higher, as is
the case in Uganda, Peru, Argentina, Brazil and
Chile. Could it be a result of the social security
system South Africa has or is it due to a “sense
of entitlement” in which both government and
large corporations are expected to provide the
necessary employment? Whatever the reason,
it is of great concern as the increasing numbers
of unemployed youth represent a serious and
potentially dangerous “time bomb”.

37
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE

Table 3.8: Start-up, new firm and established business entrepreneurial activity (%) for
efficiency-driven economies

Country 2001 2002 2003 2004 2005 2006 2007 2008 2009
Argentina Start-up 7.6 8.3 12.4 9.1 5.8 6.2 7.8 8.5 6.1
New firm 2.7 6.2 8.5 4.5 3.9 4.1 7.1 8.5 9.3
Establish 4.5 12.3 9.3 9.2 6.1 8.1 10.0 13.5 13.5
Ratio** 2.8 1.3 1.5 2.0 1.5 1.5 1.1 1.0 0.7
Angola* Start-up 19.3
New firm 4.1
Establish 4.1
Ratio 4.7
Brazil Start-up 7.3 5.6 6.5 5.0 3.3 3.5 4.3 2.9 5.8
New firm 4.1 8.4 6.9 8.8 8.2 8.6 8.7 9.3 9.8
Establish 4.6 10.1 9.0 11.9 10.9 13.4 9.9 14.6 11.8
Ratio 1.8 0.6 0.9 0.6 0.4 0.4 0.5 0.3 0.6
Chile Start-up 10.3 10.8 6.0 5.7 7.3 7.7 9.6
New firm 5.5 7.1 5.3 3.9 6.5 5.6 5.6
Establish 8.0 8.0 4.3 7.6 8.7 6.7 6.7
Ratio 1.9 1.5 1.1 1.5 1.1 1.4 1.7
China* Start-up 5.5 3.9 5.5 6.5 6.9 7.4
New firm 7.4 7.4 9.4 10.5 10.0 11.8
Establish 11.6 19.4 15.2 10.6 8.4 17.2
Ratio 0.7 0.5 0.6 0.6 0.7 0.6
Croatia Start-up 2.6 1.7 2.5 3.9 6.2 5.3 4.9 3.5
New firm 0.9 0.9 1.0 2.5 2.4 2.0 2.8 2.2
Establish 3.0 3.1 2.9 4.3 5.0 4.2 4.8 4.8
Ratio 2.9 1.9 2.5 1.6 2.6 2.7 1.7 1.6
Hungary Start-up 5.5 3.3 2.7 1.0 3.1 3.8 3.8 5.4
New firm 3.6 3.6 1.5 0.8 3.0 3.1 2.8 3.7
Establish 8.0 6.6 3.2 2.6 6.7 4.8 5.3 6.7
Ratio 1.5 0.9 1.8 1.3 1.0 1.2 1.3 1.5
Peru Start-up 30.7 29.7 15.1 19.7 16.1
New firm 12.8 14.9 12.2 6.8 5.1
Establish 20.9 15.6 15.2 8.3 7.5
Ratio 2.4 2.0 1.2 2.9 3.2
Russia Start-up 3.0 0.9 3.1 1.3 1.7 1.8
New firm 2.9 1.4 1.7 1.3 2.0 2.3
Establish 1.3 1.5 1.8 1.7 1.1 2.3
Ratio 1.0 0.6 1.8 1.0 0.8 0.8
South Start-up 3.2 4.5 2.7 3.7 3.5 3.4 5.7 3.6
Africa New firm 1.2 1.9 1.9 1.6 1.6 1.7 2.1 2.5
Establish 1.6 2.5 1.7 2.2 1.5 2.5 2.3 1.4
Ratio 2.7 2.4 1.4 2.3 2.2 2.0 2.7 1.4

38
 Chapter 3: A Summary of GEM South Africa 2001 - 2008

Uganda* Start-up 14.5 13.9 12.4

New firm 16.5 18.0 22.7
Establish 17.0 14.2 21.9
Ratio 0.9 0.8 0.5
Uruguay Start-up 8.0 7.4 7.7 8.1
New firm 4.6 5.0 4.4 4.2
Establish 8.2 6.6 7.9 5.9
Ratio 1.7 1.5 1.8 1.4

*Factor-driven economies
**Ratio of start-ups to new firms

Table 3.8 shows the relative contribution to
entrepreneurial activity of start-ups, new firms
and established businesses for efficiency-
driven economies, since 2001. South Africa has
consistently shown a high ratio between start-
ups and new firms, similar only to Peru. In all
other countries this ratio is lower, suggesting
that in South Africa many businesses either
never progress beyond the start-up phase or
close. This is of serious concern as start-ups
do not provide the required employment much
needed in this country.

39
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE

Table 3.9: Male and female entrepreneurial activity for efficiency-driven economies

Country 2001 2002 2003 2004 2005 2006 2007 2008 2009
Argentina Male 14.0 16.5 26.3 16.6 11.6 13.7 17.5 17.2 18.0
Female 5.7 11.3 13.0 9.0 7.2 6.3 11.3 15.9 11.4
Angola* Male 20.3
Female 25.2
Brazil Male 14.3 15.9 14.2 15.6 11.8 13.7 12.7 13.0 14.8
Female 8.2 11.1 11.7 11.3 10.8 9.6 12.7 11.0 15.8
Chile Male 21.8 17.8 14.1 11.4 16.4 14.9 17.0
Female 9.4 15.7 8.2 7.0 10.4 11.2 12.9
China* Male 13.6 12.0 15.6 18.1 19.3 21.1
Female 10.9 10.4 11.5 13.6 13.4 16.5
Croatia Male 5.2 3.7 5.5 9.6 11.8 9.4 10.8 8.8
Female 1.6 1.4 1.7 2.4 4.8 5.1 4.5 2.8
Hungary Male 11.1 8.5 5.0 1.4 8.1 9.3 8.0 12.0
Female 6.6 4.3 3.5 2.1 4.0 4.5 5.3 6.4
Peru Male 40.5 40.2 25.7 27.5 23.6
Female 38.8 39.0 26.1 23.6 18.4
Russia Male 8.6 3.3 6.9 3.8 4.5 4.6
Female 3.1 1.4 2.4 1.6 2.5 3.2
South Male 5.9 7.1 4.5 5.5 5.7 5.5 9.6 7.1
Africa Female 2.7 5.4 3.7 4.7 4.4 4.5 5.9 4.7
Uganda* Male 35.4 37.6 37.8
Female 22.3 25.4 30.0
Uruguay Male 16.2 17.3 15.3 16.9
Female 8.5 7.2 8.6 7.5

* Factor-driven economies

Table 3.9 shows the ratio of male and female
entrepreneurial activity, since 2001, for
efficiency-driven economies. South Africa has,
in general, a low level of female entrepreneurial
activity (although higher than in Croatia and
Russia). More should be done to encourage
entrepreneurship amongst women in South
Africa. This topic is covered in more detail in
section 3.3.2.1 in this chapter, and again in
Chapter 4.

40
 Chapter 3: A Summary of GEM South Africa 2001 - 2008
3.3.2 Profiling South Africa’s
entrepreneurs 2001 - 2008
3.3.2.1 Gender
One of the most important determinants
of a country’s competitiveness is its human
talent – the skills, education and productivity
of its workforce. Over half the working-age
population in most countries are women, but
they remain under-represented in most forms of
economic activity. Research has shown that this
is also the case for entre­preneurial concerns. The
2001 GEM Report noted that entrepreneurial
activity amongst men was almost twice that of
women and that entrepreneurial activity was
highest in the 35 – 54 years age group in both
males and females. The 2004 GEM Report
showed, based upon the three previous years
of data, that there is a relatively stable set of
relations between entrepreneurial activity and
demographic factors such as age, gender and
population group. Men and people between the
ages of 25 and 44 years were again shown to
be more likely to be entrepreneurs than women
and people younger than 25 years and older
than 44 years. The trend of entrepreneurial
activity amongst men being significantly higher
than for women, with a ratio of 1.6:1, persisted
– as noted in the 2008 GEM Report.
Female involvement in entrepreneurship
has remained constant over time, despite a
number of initiatives undertaken by government
(DTI, 2005) e.g. SAWEN (South African
Women Entrepreneurs Network), SAWIMA
(South African Women in Mining) and TWIB
(Technology for Women in Business). In the
light of South Africa’s constitutional commit­
ment to gender equality, it is imperative to
determine why female participation rates in
entrepreneurial activity continue to lag behind
male participation rates. The TEA index for
women entrepreneurs in South Africa was
lower than the averages of all countries who
participated in the GEM 2006 studies. This is
of importance as the ratio of male to female
entrepreneurs in other efficiency-driven
countries such as Peru and Argentina is 1.1:1.
A number of other countries have also achieved
higher levels of female entrepreneurial activity
in recent years. In Chile, a developing country,
it is estimated that there are 513 000 women
entrepreneurs. 33% of all entrepreneurs in
2006 were women – a significant increase
from a base of 20% in 2003. In the African
context, Cameroonian women entrepreneurs
managed 57% of small and micro businesses,
whilst in Uganda women entrepreneurs formed
the majority of the country’s business people in
the areas of farming and small to medium-sized
companies (ITC, 2004).
In South Africa women make up 52% of the adult
population. Of this only 41% are considered to
be part of the active working population and only
14.7% find themselves in executive management
positions (KPMG, 2006). A study commissioned
by the DTI (DTI, 2005) highlighted that “although
women in South Africa make up half of the
business force, their contribution has not been
adequately nurtured”. It indicated that the majority
of South African women entrepreneurs operate
within the crafts, hawking, personal services and
retail sectors.
The 2006 GEM Report highlighted a
number of issues that could explain some
of the reasons why women in South Africa
are less entrepreneurial than men and less
entrepreneurial than in other developing
countries. The key findings were:
• The majority of women entrepreneurs
(71%) had an educational qualification
equal to or lower than Grade 12. This may
influence the way women entrepreneurs
operate, such as their tendency to become
involved in opportunities that do not
require a high level of expertise.
• The specific entrepreneurial skills that
women entrepreneurs lacked were in
areas such as financial management, idea
generation skills, conducting feasibility
studies, exporting and technology skills.
• Women generally do not believe that they
are entrepreneurial. However, they are in
agreement that an entrepreneurial culture
exists in South Africa.
• Women entrepreneurs in South Africa were
not concerned about growth and were
mostly involved in “me-too” projects.
• As women are often responsible for family
welfare, they need to balance family and
business obligations. In order to do this
they are often involved in projects where
the emphasis is on creating additional
41
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE
income, rather than on expanding the
business. Often the woman is the head of
a family and hence running a business is
a large risk.
• Women often do not have assets which
can be used as security, nor do they tend
to know and understand the terminology
used by banks and are therefore hesitant
to approach them.
The disparity between male and female
entrepreneurial rates is a significant issue
in South Africa and is therefore dealt with in
some detail in Chapter 4.
3.3.2.2 Age
The influence of age on entrepreneurial activity
tends to be very similar throughout GEM coun­
tries, peaking amongst 25 – 34 year olds and
then declining as age increases. GEM 2008
shows that South Africans aged between 25 and
44 years are clearly the most entrepreneurially
active, accounting for 50% of all early-stage
activity. The increased entrepreneurial activity
in the 45-54 year group (relative to 2005
and 2006) brings South Africa more in line
with the efficiency-driven economies in the
GEM sample. This is, perhaps, an indication
of a maturing entrepreneurial population in
South Africa who regard entrepreneurship as a
career choice – either remaining in a successful
business or exiting a business in order to start a
new enterprise (Table 3.10).
3.3.2.3 Population group
The 2001 GEM Report showed that race-based
differences in overall levels of entrepreneurial
activity were substantial, with more than double
the rate of entrepreneurial activity amongst
whites (10,1%) and Indians (10,3%) than
amongst black Africans (4,6%). The finding
that black Africans were far less likely to be
Table 3.10: Involvement in early-stage entrepreneurial activity, by age
Age category
18 – 24 years
25 – 34 years
35 – 44 years
45 – 54 years
55 – 64 years
42
involved in entrepreneurial activity than other
racial groups was confirmed in the 2003 GEM
Report. The exception to this was in opportunity
entrepreneurship in Gauteng where black
Africans had a much higher opportunity activity
rate than black Africans in the rest of South Africa.
Based upon three previous years of data, GEM
2004 showed that there is a relatively stable
set of relations between entrepreneurial activity
and demographic factors such as age, gender
and population group. Whites were more likely
to be entrepreneurs than black Africans. It was
argued that this difference largely reflects lower
levels of education and a higher probability of
being located in a rural area for black Africans
compared to whites. GEM 2008 noted that as
in previous years, businesses started by whites
and Indians were more likely to mature into new
firms than those started by black Africans or,
in particular, coloureds. On a positive note,
however, the report indicated that although
black Africans continued to have the lowest
prevalence of opportunity motivation, the
difference was far less marked than in previous
years. In 2003 white opportunity-motivated
entre­preneurial activity rates were almost three
times higher than for black Africans, while the
difference between the rates in 2008 was less
than 10% – a very encouraging finding.
3.3.2.4 Rural/urban
The reports have consistently shown that
individuals located in major urban areas were
far more likely to be involved in entrepreneurial
activity than those in rural areas. The 2001
report indicated that in the metro area nearly
10% of adults were engaged in a start-up or
new firm, compared to fewer than 2% in rural
areas. The lack of entrepreneurial activity in
rural areas has been confirmed in subsequent
GEM reports, which have argued that the entre­
preneurial activity in rural areas is affected
2005 2006 2008
16% 22% 17%
30% 31% 27%
25% 24% 23%
14% 13% 24%
15% 10% 9%
 Chapter 3: A Summary of GEM South Africa 2001 - 2008
by the lack of infrastructure development,
smaller markets and lower levels of skills. The
lack of an enabling environment within rural
areas will need to be address by government
organisations as a means of addressing poverty
in and migration from rural areas.
3.3.2.5 Education
The 2001 report clearly showed that people with
matric (7,8%) and those with tertiary education
(12,3%) were significantly more likely to own and
manage a start-up than those without matric
(4,3%). Having a tertiary education significantly
increased the probability that a person would
be the owner-manager of a new firm which
had managed to survive beyond the start-up
phase. The importance of education as a pre­
dictor of individuals who believe they have the
skills to start a business, the possibility that the
business will survive beyond start-up phase
and the likelihood that the business will be an
opportunity-driven business has been consis­
tently shown in all the GEM reports. What is
therefore of concern, and will be reviewed later
in this chapter, is the questionable quality and
appropriateness of education in South Africa.
3.3.2.6 Necessity versus opportunity
entrepreneurs
The 2001 GEM Report showed that 55% of
all entrepreneurial activity in South Africa was
necessity motivated i.e. the businesses were
started by people who had no other choice for
work. Large racial disparities existed in this area,
with 66% of all entrepreneurial activity amongst
black adults driven primarily by necessity
compared with only 23% amongst whites. Over
60% of entrepreneurs of all races without matric
were necessity-driven, compared to 39% of
those with a matric and only 14% of those with
tertiary education. The 2003 report showed that
despite high unemployment, together with worse
levels of poverty and higher income inequality
in South Africa relative to other developing
countries, the level of necessity entrepreneurship
is significantly lower in South Africa compared
to other developing countries. The reports
from 2004 onwards show a steady increase
in the contribution of opportunity-motivated
entrepreneurial activity to overall early-stage
activity in South Africa. In 2008, opportunity-
driven activity accounted for 79% of total
activity and only 21% of TEA was motivated by
necessity – compared to 45% in 2004. This is
significant and is an encouraging trend, given
that opportunity entrepreneurship makes a
far more significant contribution to creating
employment than necessity entrepreneurship.
3.3.2.7 Skills to start a business
The 2001 report showed that only 26% of
South African adults believed that they had
the knowledge, skills and experience required
to start a business. Black South Africans and
women were the least likely to believe they had
the skills necessary to start a business, but the
most dramatic differences were by educational
level. Adults with tertiary education were more
than twice as likely to believe that they had the
ability to start a business, compared to those
without a matric. Individuals with matric were
also more likely to believe they had the ability
to start a business, but the difference was
less significant. The 2003 report showed that
not only is the number of South Africans that
believe that they have the knowledge, skills and
experience required to start a business low, but
the proportion of young men who believed that
they had the skills to start a business was also
much lower than in other developing countries.
3.3.2.8 Sector
The 2001 report showed that start-up and
new firm activity is concentrated largely in the
retail, hotel and restaurant businesses. These
sectors are popular specifically amongst black
adults, women and individuals without matric.
Manufacturing and business services are
favoured predominantly by white and Indian
men and those with a tertiary education. Given
the low levels of skills and education in the
South African population, it is unsurprising that
the majority of TEA business entities are in the
consumer services sector. Barriers to entry into
this sector, in terms of both skills and capital
required, are low. As a result, however, this is
an over-traded sector populated by low profit
margin businesses. The high level of competition
for limited markets can threaten the sustainability
of these businesses. South Africa already has
a disturbingly low rate of new and established
firm activity relative to other countries in the
GEM sample. The fact that a high proportion
of TEA entities are concentrated in such a
vulnerable sector is likely to exacerbate the poor
sustainability of start-ups in South Africa.
43
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE
3.3.2.9 Regional entrepreneurship
The 2003 report showed that Gauteng, the
Western Cape and KwaZulu-Natal have the
highest levels of entrepreneurial activity with
Northern Cape, the North West Province,
Limpopo and Mpumalanga having the lowest.
Much of this variation is due to the difference
in opportunity entrepreneurial activity levels,
with particularly high levels being recorded
in Gauteng and Western Cape. The 2008
report confirmed the regional trend shown in
previous GEM reports. Gauteng was the most
entrepreneurially dynamic province in terms of
both early-stage activity as well as opportunity-
motivated entrepreneurship. Gauteng, KZN and
the Western Cape together accounted for two-
thirds of early-stage entrepreneurial activity in
South Africa. Mpumalanga and the East Cape
were the two lowest ranked provinces.
One of the factors which may exacerbate the
situation in the less entrepreneurial provinces
is the phenomenon of migration. For example,
Gauteng and the Western Cape have both
recorded substantial population increases
since 2001 – 16,7% and 13,9% respectively
(Community Survey, 2007). The erosion of
potential markets as well as business networks
within the “donor” provinces may set up a
vicious cycle where more and more potential
entrepreneurs are pushed out of their increasingly
stagnant home provinces.
Gauteng has always had higher levels of
opportunity-motivated compared to necessity-
motivated entrepreneurship. 2008 was the first
year when necessity outstripped opportunity
driven entrepreneurship. This reversal for what
has been regarded as a hub of dynamic business
activity is cause for concern. The increase
in necessity-motivated ventures could be
attributed to the failure of Johannesburg’s
council to plan for sustained growth, the
decaying infrastructure, power shortages,
rising transport and power costs, and
44
burgeoning peri-urban slums and townships,
swollen by successive waves of migration from
rural areas as well as neighbouring countries. It
could be further exacerbated by retrenchment
by the city’s traditional employees. The
Western Cape and Free State, on the other
hand, were shown to have a relatively healthy
ratio of opportunity to necessity-motivated
entrepreneurial activity.
3.3.3 Who are the job creators?
Neither necessity-orientated businesses nor
businesses in the start-phase have been shown
to contribute meaningfully to job creation. A
small minority of firms (3.9%) in the start-up
phase employ any staff and only a tiny fraction
(<3%) of necessity-orientated businesses
create six or more jobs, thus challenging the
notion that the informal sector will be able to
contribute to job creation.
Businesses that are most likely to be job creators
tend to be male owned, opportunity-orientated
businesses that have passed the start-up phase
and are owned by someone with a tertiary
qualification. For new firms, the job creation
potential of men was on average 2.3 times
that of women. Opportunity new firms which
had passed the start-up phase were shown to
be more than four times as likely as necessity
firms to employ six or more people. The 2005
report highlighted that the more educated
entrepreneurs were, the higher the probability
that they were likely to start a business and the
more people they were likely to employ. Adults
who had a tertiary education displayed 2.5
times the potential to create employment than
adults who had completed secondary education
and 11 times greater than adults who had not
completed secondary education.
Table 3.11 shows the mean number of emplo­
yees in owner-managed firms for every 100
adults in the population.
 Chapter 3: A Summary of GEM South Africa 2001 - 2008
Table 3.11: Job creation potential by different population groups
Mean employees per 100 people*
Black Coloured
(mean) (mean)
Some secondary 2.0
Completed secondary 4.3
Tertiary 23.2
* This is the product of the probability of a new established firm and the mean number of employees
per firm.
3.3.4 Main inhibitors of entre­
preneurial activity in South Africa
3.3.4.1 Education
Education has consistently been identified as a
primary inhibitor of entrepreneurial activity in
South Africa. The 2001 report showed that 65%
of the expert informants identified problems
with education and training as one of the three
primary inhibitors of entrepreneurial activity
in South Africa. To put this into perspective
it is important to realise that, due to previous
apartheid policies, in 1996 one in four black
adults had had no access to formal schooling
at all and only 6% of all South Africans had a
tertiary qualification. The report acknowledged
that apartheid education damaged people’s
confidence and self-esteem, which impacted
on their initiative and creative thinking. The
restrictions created during apartheid limited the
access to informal learning and work experience
opportunities for many South Africans. These
areas are critical in developing the skills and
confidence necessary to start a business.
The 2002 GEM Report highlighted the
importance of education and training, from
primary and secondary schools to universities
and business schools, in creating and managing
small, new or growing businesses. In 2002, the
World Competitiveness Report (IMD) ranked
South Africa last (49th) in economic literacy, brain
drain and interest in science and technology, 46th
in financial skills, 47th in skilled labour availability
and 48th in science not adequately taught in
schools. The 2002 GEM Report further showed
that informal entrepreneurs require basic literacy
and numeracy skills training whereas formal
businesses require training in skills such as how
Indian White
(mean) (mean)
2.8 4.3 6.5
3.5 49.3 16.6
20.7 5.1 40.4
to keep records, budget, manage cash flow,
maximise trade credit and write a business plan.
The 2003 report argued that the problem in
the education and training system may well
account for the low levels of entrepreneurial
activity. South Africa was the only country in
which education and training was the most
frequently mentioned major weaknesses by the
key informants. Education could play a powerful
role in helping to bring about an increase in
entrepreneurial involvement of young adults.
Previous GEM reports stressed the importance
of including entrepreneurship education in the
school system. The 2004 GEM Report referred
to research by the Institute for Development
Services that suggested that entrepreneurship
education could positively influence learners in
four areas:
• learners’ self-confidence about their ability
to start a business.
• learners’ understanding of financial and
business issues.
• learners’ desire to start their own business.
• learners’ desire to undertake higher
education.
Whether it is possible to attribute post-school
entrepreneurship to in-school programmes is
still being questioned by researchers in the area.
However, it is evident that dramatic improve-
ments in the quality of education were needed,
especially for black African students, with special
emphasis on mathematics and science. From
2004 to date there is very little evidence that any
significant progress has been made in this area.
The Outcomes Based Education system has had
45
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE
little positive impact – in fact, the quality of edu-
cation appears to have decreased. Appropriate
entrepreneurship education needs to be offered
in all schools up to Grade Twelve. Universities
are beginning to recognise the importance of in-
cluding entre­preneurship programmes in certain
degrees, and the Gordon Institute of Business
Sciences (GIBS) has recently offered a Masters in
Entrepreneurship degree course.
GEM 2005 looked at the extent to which the
South African education systems prepared
learners with the skills necessary to start a busi-
ness, relative to other developing countries such
as Argentina, Brazil, Chile, Uganda and China.
The main findings were that South African
adults without a tertiary education were signifi-
cantly less likely than their counterparts in other
developing countries to be able to sustain an
opportunity-motivated new business venture
(Table 3.12). The report implied that South Afri-
can schools were less effective than their coun-
terparts in other countries in developing the
skills required for entrepreneurship.
However, young South Africans with a tertiary
education were almost as likely as their peers
in other developing countries to start an
opportunity-motivated business. This suggested
that South Africa’s tertiary education system
prepared people relatively well to start a
business. A separate survey of Grade 5 and 7
learners showed that in predominantly black
schools, the probability of acquiring critical
entrepreneurial skills and attitudes was 50%
lower than was the case for their counterparts
in predominantly white schools. This gap
Table 3.12: Opportunity-motivated new firm activity rates among young adults by highest
educational attainment
Not completed secondary
schooling (%)
South Africa 0.1
Argentina 2.3
Brazil 4.0 s
Chile 4.0 s
China 2.5s
Uganda 7.4s
s
Indicates that the figure is significantly larger compared with that for South Africa, at the 5% level
of significance.
46
appeared to grow larger over time, with the area
of greatest weakness in black African, coloured
and Indian schools being in financial arithmetic.
The majority of staff across all schools indicated
that they would value further training in the
teaching of entrepreneurship, with the greatest
need being identified in black African schools.
What is of concern is that in the 2008 GEM
Report, experts in South Africa continued to
be more pessimistic than experts in the ma­
jority of efficiency-driven countries about the
availability of help outside the education system
as well as the quality of school-level and post-
school entre­p reneurship training. Of particular
concern was the quality of training after school,
where South Africa achieved the lowest rating
of all countries in the sample of efficiency-
driven countries.
3.3.4.2 Cultural and social norms
The 2001 report recognised that entrepreneur-
ship was not sufficiently reported on and cel-
ebrated in the public press, while sporting he-
roes received much coverage and respect. This
meant that there were few role models for aspir-
ing entrepreneurs, particularly in the black Af-
rican community. The report also found a lack
of “can-do” attitude, which was partly attributed
to low levels of entrepreneurial experience and
informal learning opportunities. Entrepreneur-
ship was not seen as a legitimate or desirable
career choice, as corporate or professional
careers represented the pinnacles of achieve-
ment. The fear of failure was high because so-
ciety was hard on those legitimate businesses
that failed. People stood to lose not only their
money, but also their social respect.
Completed secondary Tertiary education (%)
schooling (%)
1.0 4.3
6.6s 7.9
5.2s 6.3
3.4 6.5
4.7s 5.1
12.9s 12.0
 Chapter 3: A Summary of GEM South Africa 2001 - 2008
The 2006 report found that the South Afri-
can en­vi­ronment in which children grow up
influenced them to believe that it is better to
find a job in order to be secure. There was a
sense of en­titlement and an expectation that
big business, government and others should
create jobs, rather than that one can create
one’s own employment. A further inhibiting fa­
ctor was that South Africa has a harsh at­ti­­tude
towards failures which inhibited many potential
entre­­­­preneurs. Given that starting a business
is a risky process that often involves cycles of
failure, a harsh attitude to failure would be a
limiting factor in entrepreneurial development.
The 2008 report emphasised the need for dev­­
eloping a positive but realistic entre­preneurial
culture. One expert noted: “In West Africa
there is little reliance on government assistance
and a realistic expectation on the part of small
business owners of what the financial returns
on the business will be. In South Africa, small
businesses and start-ups appear to have unre-
alistic expectations of both what the financial
turnover will be as well as the time it will take to
break even.” Another expert commented on the
lack of a co-operative entre­preneurial culture
in South Africa. People are reluctant to share
skills and facilities in order to foster the success
of entre­preneurial ventures.
3.3.4.3 Financial and business support
The 2001 report recognised that there appeared
to be a lack of effective commu­nication between
entre­preneurs and financial institutions, with
the latter appearing to be unable to interact
effectively with entre­preneurs. At the same time,
the information provided by entrepreneurs was
often poorly researched, the ideas proposed
often questionable and entrepreneurs were
unable to present business plans in a usable
format. Government interventions were poorly
implemented and ineffectively marketed.
Khula Enterprise Finance and DTI were heavily
criticised whereas more targeted programmes
such as the National Manufacturing Advisory
Centre were identified as being more successful.
The 2002 report estimated that approximately
two million people were engaged in some
form of self-employment. Providing effective
business support to all of these individuals was
beyond South Africa’s capabilities and financial
resources. Supplying finance to inexperienced,
poorly skilled entrepreneurs is an ineffective
use of scarce resources, particularly if these
individuals do not have the correct skills set
to make effective use of the finance provided.
Mentorship, guidance and small business
training support is an essential component of
entre­preneurial development. The report ack­
nowledged that not all individuals who were
involved in some form of self-employment should
be referred to as entrepreneurs. A number of
individuals involved in self-employment were
sur­vivalist businesses and started the business
as the only option for making a living. These
indi­viduals would benefit more from a focused
policy on poverty relief. Given the scarce re­
sources available in South Africa and the im­
portance of using them effectively, support
should be channelled to those that are capable
of contributing to both wealth and job creation.
Effective targeting would be improved if entre­
preneurs were categorised according to their
capacity to create jobs, and the particular
needs of each category of entre­preneur were
identified and addressed. The report also
highlighted that informal businesses require
an effective com­munity-based micro-finance
infrastructure. There is a definite lack of micro-
loan organisations offering smaller loans
(R300 – R3500) without exorbitantly high
interest rates.
Lack of financial support had been widely
reported as the main problem facing entre­
preneurs in South Africa. However, the 2003
GEM Report showed that South Africa’s
financial system was no more reluctant in
support of entrepreneurs than for other
developing countries participating in GEM.
Internationally, formal financial institutions
appeared to provide funding to only a small
minority of entrepreneurs. Globally, the more
important source of start-up finance appeared
to be entrepreneurs’ savings and their ability
to access informal investments from friends,
family and colleagues.
The 2003 report questioned how financial
management practices in black-owned, formal
businesses in South Africa impacted on their
financial health and ability to raise bank
finances. It is widely accepted that the careful
management of cash flows is vital to the survival
of a young entrepreneurial business. GEM
47
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE
2002 showed that a significant number of
entrepreneurs from disadvantaged communities
did not keep financial records. The focus of
the 2003 research was on entrepreneurs from
disadvantaged communities who were owner-
managers of registered small and medium-
sized businesses. This research showed that:
• Cash constraints were widespread amongst
entrepreneurs from disadvantaged com­
munities with registered businesses.
• Cash flow difficulties were significantly
reduced in firms that kept a cash book,
kept a record of debtors, practised active
debtor management and controlled
inventory. Implementing any of these
practices was associated with a minimum
of 33% reduction in the probability of
an exhausted overdraft. Doing all four
appeared to re­duce this probability by as
much as 61%.
• Implementing these practices also sig­
nificantly increased the probability that a
firm would succeed in an application for
term loan finance.
Access to finance has remained one of the top
three constraints mentioned by the national
expert panel and is dealt with in some detail in
Chapter 8.
3.3.4.4. The regulatory environment and
government policies
The 2002 report showed that a high proportion
of informal entre­preneurs lack the skills to
comply with the legal and tax requirements
facing registered businesses. Registered bus­
inesses are hindered by the enormous admin­
istrative and cash flow burden that registration
adds to the business. Although numerous small
business incentives are becoming available,
excessive bureaucracy and cumbersome app­
lication processes, offices that are only open
on weekdays and the protracted, inefficient
decision-making has limited the positive impact
of these incentives.
International evidence suggests that the
regulatory environment has a major influence
on the survival and growth of small and new
businesses. A study by the SBP (2004) show­ed
that compliance costs in South Africa represent
8.3% of turnover for enterprises with annual
48
sales of less than R1 million and 0.2% of
turnover for corporations with sales of R1 billion
or more. The study showed that regulatory
compliance costs in South Africa in 2004
were about R79 billion or 6.5% of GDP. This
is prohibitive and these costs act as a serious
constraint to business at both a provincial and
local level. The then Minister of Finance – Trevor
Manuel – stated in his 2004 Budget Speech
that “reducing the regulatory burden on (small)
businesses is a key element of government’s
strategy for encouraging employment creation”.
A few months later, he reaffirmed that “small
and micro-enterprise development is set to be
boosted by regulatory reforms, micro-credit
initiatives and business support”. Former
President Thabo Mbeki’s State of the Nation
speech in May 2004 re-emphasised this when
he spoke about the need for government to
“continue to work to reduce the cost of doing
business in our economy”.
Changes to the Value Added Tax (VAT)
threshold, as well as the regularity of VAT return
requirements, have in some way decreased
the onerous nature of this form of taxation for
small business. However, many of the other
regulations governing small businesses are still
too restrictive or the organisations involved in
managing these aspects are inefficient. The
2006 report highlighted that regulations still
created huge administrative burdens and high
costs when starting a business. Regulations ass­
o­­ciated with starting a business have eased in
recent years, albeit marginally. In 2007, nine
procedures were required, taking 35 days; in
2009 this had been reduced to six procedures
taking 22 days.
The 2008 report noted that South Africa’s
restrictive employment laws are seen as one
of the biggest regulatory obstacles to business
growth. Policies not directly related to the bus­
iness sector, but which have a marked impact
on business efficiency were also mentioned: for
example, government’s ineffective policies on
crime, poorly conceptualised and implemented
educational policies and the mismanagement
of initiatives such as the SETAs. To date,
however, not enough has been done to reduce
the negative impacts of regulatory envi­ron­
ment, as is evident from the most recent Global
Competitiveness Index (2009/2010).
 Chapter 3: A Summary of GEM South Africa 2001 - 2008

3.3.4.5. Government support for small
enterprises
The 2002 GEM Report found that few business
support centres specifically targeted the
informal sector while government initiatives
directed towards the formal sector were largely
too generic and had had limited success, with
the exception of the National Manufacturing
Advisory Centres (NAMAC). This finding was
supported by the 2004 SME survey. Arthur
Goldstuck, Managing Director of World Wide
Worx, showed that government efforts to
promote small enterprises are not well regarded
by small and medium companies. Many firms
are unaware of government initiatives to
support them, while others, even if they are
aware of these initiatives, have chosen not to
use them. Table 3.13 shows the low awareness
amongst entrepreneurs of these institutions
and, in particular, the low usage of them.
Additional GEM research in 2007 confirmed
the low awareness and usage of government
initiatives by entrepreneurs (see Table 3.14).
As indicated previously, since 2004 several of
the agencies (Manufacturing Advisory Centres,
Ntsika Promotion Agency and Umsobomvu
Youth Fund) have been disbanded and new
agencies have been formed. It remains to be
seen whether these new organisations will be
more effective than the old disbanded ones.
In 2004, the government itself admitted
that measures to support small enterprises
had been less than satisfactory. In order to
increase the use of government programmes,
government would need to significantly
improve its communication with respect to the

Table 3.13: Awareness and use of government small enterprise support (Source: Goldstuck,
2004, SME survey)

Heard of Used
SETAs 61% 32%
Competitiveness Fund 32% 11%
Industrial Development Corporation 45% 7%
Export Incentives 12% 2%
Manufacturing Advisory Centres 11% 1%
Ntsika Promotion Agency 13% 1%
Khula Enterprise Finance 9% 1%
Brain 9% 1%
Umsobomvu Youth Fund 4% 1%

Table 3.14: Awareness and use of government enterprise support in 2007

Gauteng KwaZulu-Natal Western Cape

UYF: heard 57.3% 51.0% 23.4%
UYF: used 11.7% 1.6% 1.3%
KEF: heard 14.0% 8.1% 9.2%
KEF: used 0.8% 0% 0.3%
SEDA: heard 13.5% 6.5% 10.0%
SEDA: used 1.3% 0.2% 0.5%
IDC: heard 8.5% 4.7% 4.1%
IDC: used 1.0% 0% 0.3%
NEF: heard 10.9% 4.5% 6.6%
NEF: used 1.3% 0.2% 0.3%
Other: heard 1.0% 2.0% 1.7%
Other: used 0.8% 0% 0.5%

49
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE
support services available and then ensure that
the services offered are provided efficiently
and effectively. The new organisations will
need to ensure that they have good systems
and that they hire professional management
teams, complemented by people who have the
necessary small business expe­r ience and skills.
The private sector provision of business support
has proved to be more successful. Private-
public partnerships or using the Business
Partners model as a blue-print should therefore
be considered. A special focus on developing
entrepreneurship in lesser developed and
rural areas is essential. It is recognised that
it is impracticable to expect youth lacking the
appropriate education and business experience
to start viable and sustainable businesses. Public
and private partnerships should investigate
the possibility of micro-franchising where tried
and tested business models are used and full
support is given to the entrepreneurs. To date
very little positive action has been taken.
3.3.5 Major lessons learnt and
actions taken
2001 GEM report:
Major lesson learnt and actions taken
The most important finding from the 2001
report was the lack of suitable entrepreneurial
and business training, especially amongst the
youth of South Africa. Government introduced a
new curriculum in 2005 and promoted agencies
such as Umsobomvu Youth Fund and the
Youth Commission. The agencies were totally
unsuccessful and were disbanded in 2008.
Action-based learning in schools has not been
a success, with the standard of matric passes
declining significantly over the past 4-5 years.
2002 GEM report:
Major lesson learnt and actions taken
GEM 2002 showed that there is a distinct
difference between formal and informal
businesses and that targeted business support
needs to be provided to each sector. Khula
Enterprise Finance accepted this and specifically
targeted each sector, for example the guarantee
scheme and recently launched Khula Direct.
However, more government-backed micro-
finance programmes are required, especially in
the poorer and more rural areas.
50
2003 GEM report:
Major lesson learnt and actions taken
The financial health of many small businesses
is dependent upon good administrative
and financial management. A number of
organisations have been set up to assist with the
proper training of SMME entrepreneurs, e.g.
The Business Place, SEDA, entrepreneurship
centres at universities and technicons and
certain NGOs. Some success has been
achieved, but insufficient to have a significant
impact. Some form of experiential e-learning
is required which can be rolled out en masse,
especially into smaller towns and rural areas.
2004 GEM report:
Major lesson learnt and action taken
The cost of regulatory compliance is extremely
high, especially for small businesses. Much has
been said about this by government officials, but
little real and effective action has been taken.
2005 GEM report:
Major lesson learnt and action taken
Opportunity new firms in the formal sector create
more jobs than necessity-based entrepreneurs in
the informal market. Education and experience
or assistance from qualified mentors is essential.
Government agencies have not changed their
modus operandi and still engage underqualified
and inexperienced mentors who are unable to
impart practical knowledge.
2006 GEM report:
Major lesson learnt and action taken
The level of entrepreneurial activity amongst
women in South Africa is very low, primarily
due to a lack of suitable education, family
commitments and lack of ready access to
funding. Very little has been done to promote
women in business and there are few
government-directed programmes available
specifically for women.
2007 GEM report:
Major lesson learnt and actions taken
Youth unemployment was identified as a critical
factor in the long-term wellbeing of South Africa.
It is the youth who will provide future economic
growth and help towards eradicating poverty.
Education and training efforts should focus
on inculcating an entrepreneurial mindset and
providing the youth with the right knowledge and
 Chapter 3: A Summary of GEM South Africa 2001 - 2008

skills to start their own business. Clearly neither
the Youth Commission nor Umsobomvu Youth
Fund achieved these objectives as they were both
disbanded by the government in 2008. Support
services that will help youth entrepreneurs to
develop and identify modern, cutting edge
business ideas that can be transformed into
sustainable businesses should be provided. A
national integrated and co-ordinated support
system should be developed to address the
specific needs of youth entrepreneurs. In April
2009 the National Youth Development Agency
(NYDA) was formed. However, the effectiveness
of this organisation will still need be proved.

51
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE

52
Zubayr’s story...
Personal Life Motto Inspires Entrepreneur
to Aim HIGHER!
All of his life, Zubayr Harneker has been
a sports fanatic. As a boy he dreamed of
being a soccer player, but realised that
although he had a natural talent for sport
it was not enough to go professional.
Since then, he has managed to turn this
passion into a career – just not in the way
he expected.
Today Harneker is the proud owner of athlete
management company Raise Your Game –
HIGHER! Athlete Management.
The company already has five high-profile
sportsmen and women on its client list – including
Morgan Newman, the Western Province, Stormers
and Emerging Springbok rugby centre.
A dream has indeed been realised for the ambitious
28-year-old from Lansdowne, Cape Town.
The year old company, which he currently runs
from home, is a dynamic, forward-thinking and
SUCCESS SUMMARY
Zubayr Harneker has combined his
passion for entrepreneurship and
a love of sport in a novel athlete
management business called Raise
Your Game – HIGHER. Harneker eats,
sleeps and breathes his brand, and
says being able to establish close and
caring relationships with clients is what
has helped pave the way for his start-
up’s budding success.
proactive sports agency that provides essential
management, marketing services and advice to
athletes and sporting personalities.
Harneker is well placed to offer the service,
having himself grabbed an opportunity to raise
his own game higher last year by completing
53
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE
the challenging MBA programme at the UCT
Graduate School of Business.
“I felt I needed the MBA: firstly, to complement my
entrepreneurial spirit and secondly, to obtain the
best business and management tools to run this
company and future ventures profitably,” he says.
“At the moment I run the company by myself so I
really have to draw on all my newly acquired know­
ledge and resources gained through the MBA.”
Harneker adds that his company is doing things
differently from its competitors, offering more than
just an agency service for sportsmen and women.
His aim prior to setting up the business was to
provide a holistic service where his clients could
access advice beyond just their sporting careers.
At the moment I run
the company by myself
so I really have to
draw on all my newly
acquired knowledge
and resources gained
through the MBA.
“Most sporting personalities understand that
professional sport has a limited lifespan. By
giving them the proper networks, talking to them
about their other aspirations and supporting
them while they get the relevant academic
qualifications or necessary skills, we are able to
make our clients feel secure about their futures
beyond professional sport,” says Harneker.
He adds that some of his clients have already
expressed interest in business ventures and sports
management as options for their futures and he
continues to work with them to see that both their
current and future goals are realised.
In addition, the company provides advice around
financial management. They get advice on how
to invest well and also how to deal with sponsor
54
rejection, sporting injuries and career set-backs.
“My company caters for up-and-coming sports­men
and women as well as established clients, so I want
to be able to provide a service where all of their
needs can be professionally addressed through one
source. It’s a tough world out there. These men and
women need to be supported and motivated and
that’s what Raise Your Game – HIGHER! Athlete
Management aims to do,” he says.
Some years ago Harneker completed a BCom
Accounting degree at UNISA, but he maintains
that it was through doing his MBA at the UCT
GSB that he came to understand what he really
wanted to gain through his business.
“The MBA taught me that I was a brand and the
best way to achieve great things was through
eating, sleeping and breathing the brand. That’s
the reason why I incorporate everything about me
and the things I value most into the company,”
he says.
What Harneker values is being able to do things
properly, with no short cuts. He aims to give his
clients everything they could need from an agent
and promotes the attitude that through hard work
they can achieve anything.
“I grew up in an impoverished home. I learnt as
a young boy to get the things I wanted through
hard work, and I learnt to do things for myself.
That’s why being able to bring my two passions,
sport and entrepreneurship, together was such an
important, but I guess quite natural, step for me,”
he says.
So what’s next for Harneker, personally and
professionally?
“I want to see my business grow. Currently there
are huge sports agencies out there that cannot
give their clients what I can give them through
one source, so there is definitely a place in the
market for a business like mine.”
Harneker adds that there are many personal
goals still to be achieved, but he has already
conquered the greatest one – being able to do
something that makes him happy and living his
passion every day.
Michelle’s story...
Lofty Entrepreneurial Aspirations Rewarded
SUCCESS SUMMARY
Making her business, the Lofted Bed
& Breakfast, a success has not been
easy for Michelle Pietersen, but her
heart-warming hospitality has made an
award-winning difference and set her
apart from the competition.
When the going gets tough, the tough get
going – those with an entrepreneurial spirit
see out tough times by being industrious
and creative. This is embodied by Michelle
Pietersen, owner of the Lofted B&B in Paarl
and the 2009 winner in the entrepreneur
category of the Businesswomen’s Asso­
ciation’s (BWA) Regional Business Achiever
Awards.
Having had to give up her job as a music teacher
in Paarl with the birth of her second child,
Michelle was not about to let her family struggle
financially because of it. And so, making creative
use of the large family home, she opened up her
own bed and breakfast: the Lofted B&B.
The B&B offers comfortable accommodation
at affordable rates and can accommodate all
guests – able and physically challenged.
To Michelle, it was imperative to convey the
55
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE
vibrancy of South Africa’s “rainbow people”. This
is reflected in the charming South African décor
of the place and its heart-warming hospitality. In
addition, one of the best advantages of the Lofted
B&B is that it is situated in a tranquil setting, with
spectacular views of the Berg River Valley.
But opening a B&B that is of a high standard
is not without its challenges – especially what
Michelle terms “the tourism challenge”, which was
the difficulty of breaking into the existing tourism
market and being able to compete with existing
B&Bs in her area.
With determination, however, she made great
strides and the BWA award pays tribute to this
success. It has also created some new opportunities
for her.
“Winning the BWA entrepreneurial award has
opened many doors for me,” she says. For one
thing, she has now been nominated as a board
member of the Paarl Tourism Bureau. Being
associated with the BWA and winning their award
has also brought her and her business significant
recognition within the industry.
Another challenge for Michelle’s business was
starting it with very little capital. “In 2006 we had
this very large house,” she says, “but very little
cash, even though I was then working part-time
managing the Stellenbosch University Orchestra.”
In order to create a B&B of the high standard
Michelle envisioned, she and her husband
used their own cash. They reinvested it in small
amounts incrementally to do up the property
and get it to its current state. In May 2007 she
registered her business.
Initially Michelle was involved at every level,
from managing the running of her new business
to doing the everyday physical tasks. Now she is
mostly involved in marketing the business within
the tourism sector, having employed permanent
staff to take care of the daily duties. She points out
that marketing her B&B isn’t important only within
the province, but also within the whole of South
Africa. She is often on the road attending local
travel shows.
56
“I am constantly looking to improve the service
that I am selling and it is important to keep up
with new trends in the industry.” She is still
very much involved in the management of the
daily running of the place, “not forgetting,”
she points out, “to be the perfect host to
my patrons.”
I have learnt never to leave
the community behind
– tourism is a community-
orientated field.
Neighbours and community
will make your business
sustainable and will bring
people to you.
The support of her local community, who refer
guests to her establishment, has helped to make
the business a success. Support from local govern­
ment, and now winning the BWA award, have also
helped her reach her goals in running her B&B.
For those who are interested in pursuing the
dream of opening their own B&B, Michelle has
this advice to give: “Do a market analysis of the
area in which you would like to open your B&B,
finding what already exists and what niche you
can fill. The other important aspect is to make sure
that your establishment is accessible: location,
location, location!”
Michelle also has an interest in social development.
She organises regular networking sessions for
women: empowering them, dealing with issues
that are close to their hearts and motivating them
to become business women.
“I have learnt never to leave the community
behind – tourism is a community-orientated
field. Neighbours and community will make
your business sustainable and will bring people
to you.”
 Chapter 4
Entrepreneurship in South Africa in 2009
Entrepreneurship has, in recent years, become
a key focus of research. It is considered to
be an important mechanism for economic
development through job creation, innovation
and its welfare effect, which has led to a
burgeoning policy interest in national-level
entrepreneurial activity. This chapter analyses
and reports on the 2009 adult population
survey data in order to provide insights into
the current state of entrepreneurship in
South Africa.
Nielsen SA, a local market research company that
specialises in national surveys, interviewed 3135
respondents during May and June 2009. The
questionnaire was translated into six vernacular
languages – Zulu, Xhosa, Tswana, North Sotho,
South Sotho and Afrikaans – and face-to-face
interviews were conducted in the respondent’s
language of choice. To ensure that the sample
was representative, area stratified probability
sampling was used. The sample was stratified by
population group, then by region and community
size. All nine provinces were included, and four
different community size designations – namely
metro, cities and large towns, small towns and
villages, and rural – were used.
4.1 Entrepreneurship in
South Africa: a global
perspective
In 2009, 54 countries across the globe
participated in the adult population survey.
More than 180 000 adults were interviewed
and answered questions on both their
attitude towards as well as participation in
entrepreneurial activity. In order to provide
a global perspective on South Africa’s
per­formance, Table 4.1 summarises the
involvement in entrepreneurial activity over
several phases of the entrepreneurial process
for all 54 countries. The countries are
divided into three groups according to the
classification used in the 2009 GEM Executive
Report, namely factor-driven, efficiency-driven
and innovation-driven economies (as defined
in Chapter 2).
The countries which are classified as
innovation-driven economies all fall into the
high-income category used in earlier GEM
reports, while those classified as factor-
driven or efficiency-driven economies fall
into the middle to low income category.
These income categories are important, as
GEM research has established a consistent
association between GDP per capita and the
level and nature of entrepreneurial activity
in a country. Bosma et al. (2008) provide a
detailed explanation of this relationship in
the 2008 GEM Executive Report. In countries
with low GDP per capita, TEA rates tend to
be high with a relatively high proportion of
necessity-motivated entrepreneurship. As per
capita income increases, larger established
firms play an increasingly important role
in the economy, providing the option of
stable employment for a growing number
of people as a viable alternative to the risks
of self-employment. High-income countries
are characterised by greater availability of
resources and more affluent markets, which
may stimulate an increase in opportunity-
motivated entrepreneurship. To some extent,
then, the GDP per capita of a country allows
us make predictions about the level and type
of entrepreneurial activity likely to be prevalent
in that country.
To facilitate comparisons, the order within each
group in Table 4.1 is sorted according to total
entrepreneurial activity.
Since GEM’s inception, the Total Early-stage
Entrepreneurial Activity (TEA) index has been
the principal measure of entrepreneurial activity
57
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE

Table 4.1: Prevalence rates (%) of entrepreneurial activity across GEM countries in 2009

Country Nascent New TEA Established Overall

entrepre- business business entrepre-
neurship ownership ownership neurial
rate rate rate activity
Factor-driven economies (middle to low income)
Uganda 12.4 22.7 33.6 21.9 53.5
Jamaica 13.0 10.6 22.7 16.3 37.9
Morocco 6.9 9.4 15.8 15.2 30.6
Lebanon 6.7 8.8 15.0 16.0 30.2
Guatemala 17.1 12.2 26.8 3.3 29.8
Yemen 22.8 1.2 24.0 2.9 26.7
Venezuela 13.3 5.4 18.7 6.5 24.9
Algeria 11.3 5.6 16.7 4.7 21.2
Republic of Tonga 6.5 11.1 17.4 2.3 19.5
West Bank & Gaza
3.0 5.9 8.6 6.9 15.0
Strip
Syria 3.4 5.1 8.5 6.7 14.9
Saudi Arabia 2.9 1.9 4.7 4.1 8.4
AVERAGE 9.9 8.3 17.7 8.9 26.0
Efficiency-driven economies (middle to low income)
China 7.4 11.8 18.8 17.2 35.7
Colombia 15.0 8.0 22.4 12.6 33.8
Ecuador 6.3 9.7 15.8 16.1 31.2
Peru 16.1 5.1 20.9 7.5 28.1
Argentina 6.1 9.3 14.7 13.5 27.8
Dominican Republic 8.8 9.2 17.5 11.4 27.7
Brazil 5.8 9.8 15.3 11.8 26.9
Chile 9.6 5.6 14.9 6.7 20.8
Tunisia 2.2 7.2 9.4 10.2 19.6
Latvia 5.3 5.4 10.5 9.0 19.4
Uruguay 8.1 4.2 12.2 5.9 17.9
Iran 8.2 4.1 12.0 6.5 17.5
Hungary 5.4 3.7 9.1 6.7 15.8
Jordan 5.9 4.9 10.2 5.3 15.2
Serbia 2.2 2.8 4.9 10.1 14.9
Panama 6.2 3.5 9.6 4.2 13.7
Croatia 3.5 2.2 5.6 4.8 10.3
Malaysia 1.7 2.7 4.4 4.3 8.4
Bosnia & Herzegovina 3.1 1.3 4.4 3.9 8.3
Romania 2.8 2.3 5.0 3.4 7.9
South Africa 3.6 2.5 5.9 1.4 7.2
Russia 1.8 2.3 3.9 2.3 6.0
AVERAGE 6.1 5.3 11.2 7.9 18.8

58
 Chapter 4: Entrepreneurship in South Africa in 2009

Country Nascent New TEA Established Overall

entrepre- business business entrepre-
neurship ownership ownership neurial
rate rate rate activity
Innovation-driven economies (high income)
Greece 4.5 4.7 8.8 15.1 23.6
Iceland 7.6 4.2 11.4 8.9 19.7
Republic of Korea 2.7 4.4 7.0 11.8 18.6
United Arab Emirates 6.5 7.4 13.3 5.7 18.3
Norway 5.0 3.9 8.5 8.3 16.2
Switzerland 4.3 3.5 7.7 8.4 16.0
Netherlands 3.1 4.1 7.2 8.1 14.8
United States 4.9 3.2 8.0 5.9 13.7
Finland 2.9 2.3 5.2 8.5 13.6
United Kingdom 2.7 3.2 5.7 6.1 11.7
Spain 2.3 2.8 5.1 6.4 11.4
Israel 3.4 2.7 6.1 4.3 10.2
Italy 1.8 1.9 3.7 5.8 9.5
Germany 2.2 2.1 4.1 5.1 9.1
Denmark 1.6 2.0 3.6 4.7 8.3
France 3.1 1.4 4.3 3.2 7.2
Hong Kong 1.6 2.2 3.6 2.9 6.5
Belgium 2.0 1.6 3.5 2.5 6.0
AVERAGE 3.4 3.1 6.3 6.8 11.7
All middle to low income countries
AVERAGE 7.5 6.4 14.8 8.3 21.3
All GEM countries
AVERAGE 5.9 5.2 11.7 7.7 17.7

in participating countries. It therefore provides GEM research has shown a consistent

a benchmark for cross-national comparisons
as well as longitudinal comparisons within
countries. In 2009 South Africa ranked 35th
out of 54 countries, with a TEA rate below the
average (11.7%) of all participating countries.
This is in line with the findings of previous GEM
surveys. The 2006 GEM Report showed that
South Africa’s performance in terms of relative
position has, since 2001, consistently been
below the median, and this trend continues
in 2009.
association between a country’s stage of
economic development and its level of
entrepreneurial activity. South Africa’s TEA
rate of 5.9% is significantly lower than the
average for all efficiency-driven economies
(11.2%) as well as the average for all middle to
low income countries (14.8%). These findings
are cause for serious concern, particularly as
they again confirm the trend of below-average
entrepreneurial activity demonstrated in
previous GEM surveys.

59
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE

35
UG
Percentage of 18-68 Age Group Involved In Early-Stage

30

GT
25
YE JM
CO
Entrepreneurial Activity

PE
20
CN VE
TG DO
DZ LB
15 MA E
BR
C
AE
AR L
U
JO IR IS
LV
10 HU GR
TN US NO
S KR NL SW
Y ZA HR IL ES UK
MY FI
5 S
SI F DK HK
BA YU RO RU A IT DE BE
J
P
0
0 10 20 30 40 50 60
GDP Per Capita in Purchasing Power Parities ($), in Thousands

Figure 4.1: Early-stage entrepreneurial activity rates and per capita GDP, 2009 (Source: 2009
GEM Global Report)

Figure 4.1 plots GDP per capita against the TEA (designated AR), Chile (CL), Brazil (BR) and Peru
rates for 2009, demonstrating the U-shaped (PE). In 2009, these countries achieved TEA
relationship between income per capita and rates that are three to four times higher than
entrepreneurial activity. It is clear from Figure that achieved by South Africa. It is interesting
4.1 that South Africa’s position (designated to note that these countries, along with most of
ZA) is substantially below the line of best fit. the Latin American countries that participated
According to the GEM data, a country at South in GEM, occupy positions either above or close
Africa’s stage of economic development would to the trend line in Figure 4.1. Bosma and
be expected to have a TEA rate in the order of Levie (2009) note that economic development
13%, more than double South Africa’s actual (or welfare) is not the only factor determining
rate of 5.9%. entrepreneurship rates. They argue that
entrepreneurial attitudes and perceptions play
Given that South Africa is characterised by a dual an important part in creating an entrepreneurial
economy – a formal and an informal economy culture. Table 4.2 lists a number of GEM
– we would also predict TEA rates in line with indicators concerning individuals’ perceptions
other developing or emergent economies with regarding entrepreneurship, for the efficiency-
a similar GDP per capita, such as Argentina driven cohort of GEM participants.

60
 Chapter 4: Entrepreneurship in South Africa in 2009

Table 4.2: Entrepreneurial attitudes and perceptions in efficiency-driven economies,

GEM 2009

Country Perceive good Believe they Have entre­ See entre­­ Believe
business have entre­ preneurial preneurship as successful
oppor­tunities preneurial intentions (%) a good career entre­preneurs
(%) capabilities choice (%) have high
(%) status (%)
Argentina 44 65 14 68 76
Bosnia & 35 57 17 73 57
Herzegovina
Brazil 47 53 21 81 80
Chile 52 66 35 87 70
China 25 35 23 66 77
Colombia 50 64 57 90 74
Croatia 37 59 8 68 49
Dominican 50 78 25 92 88
Republic
Ecuador 44 73 31 78 73
Hungary 3 41 13 42 72
Iran 31 58 22 56 78
Jordan 44 57 25 81 84
Latvia 18 50 10 59 66
Malaysia 45 34 5 59 71
Panama 45 62 11 74 67
Peru 61 74 32 88 75
Romania 14 27 6 58 67
Russia 17 24 2 60 63
Serbia 29 72 22 69 56
South Africa 35 35 11 64 64
Tunisia 15 40 54 87 94
Uruguay 46 68 21 65 72
AVERAGE 36 53 19 71 70

It is clear from Table 4.2 that the Latin American
countries have a significantly favourable
attitude towards entrepreneurship. In all the
categories assessed, these countries score
well above the average for all efficiency-
driven economies. South Africa, on the
other hand, scores below average for all the
indicators of entrepreneurial attitudes and
perceptions. In terms of perceived capabilities,
South Africa has the third lowest score.
GEM research has confirmed the importance of
individuals’ perceptions of their entrepreneurial
ability, their recognition of start-up opportunities
and the extent to which their social networks
include entrepreneurs as being instrumental in
whether or not they become involved in starting
new businesses. The 2004 GEM Report noted
that individuals confident that they possessed

61
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE
the skills to start a business were four to six times
more likely to engage in entrepreneurial activity.
Those who saw good business opportunities in
their area were three times more likely to be
involved in entrepreneurial activity (Orford et
al., 2004). The discrepancy in entrepreneurial
attitudes and perceptions between South
Africa and the efficiency-driven Latin American
economies is likely to contribute to the significant
differences between their respective TEA rates.
Van Broembsen et al. (2005) note that
although the TEA rate provides a quantitative
assessment of entrepreneurial activity, it does
not provide much information about the quality
of that entrepreneurship. An important factor
to look at in this regard is the proportion of
start-ups to new firms, as well as the prevalence
of established businesses. Start-up or nascent
entrepreneurs are actively involved in setting
up a business they will own or co-own, and
have paid wages or salaries for less than three
months. New firms have survived the liability
of newness and have paid salaries and wages
for more than three months but less than three
and a half years. Established businesses have
survived beyond three and a half years.
The prevalence of nascent entrepreneurial
activity, new businesses and established
businesses across the GEM countries in 2009
is summarised in Table 4.1. South Africa’s
nascent entrepreneurship rate of 3.6% is
below the GEM average of 5.9% as well as
the average for efficiency-driven economies
of 6.1%. In terms of new firm activity South
Africa ranked 40th out of the 54 countries,
with a new business prevalence rate of 2.5%.
This is significantly lower than the average of
5.2% for all GEM countries and 5.3% for all
efficiency-driven countries. South Africa’s low
TEA rate is therefore at least partly attributable
to a relatively high failure rate for start-ups, or
the fact that they tend not to progress beyond
the nascent level. The prevalence rates for
established business owner-managers are
particularly disturbing. In terms of established
business activity South Africa ranked last out of
the 54 countries, with an established business
rate of only 1.4%. The average for all GEM
countries is 7.7% while that for all efficiency-
driven countries is 7.9% - almost six times the
rate for South Africa.
62
The economic implications of these findings are
certainly worrying. The contribution of nascent
entrepreneurial firms to economic development
is minimal. According to the 2005 GEM Report,
less than 4% of firms in the start-up phase take on
any employees at all. The mean number of jobs
in start-ups is 0.1 – in other words for every 100
nascent firms, on average only ten additional jobs
will be created. In new and established firms, on
the other hand, the mean number of jobs is 3.1 and
3.2 respectively, or at least 32 times greater than
for nascent firms. South Africa’s low new firm and
established business prevalence rates thus paint
a bleak picture of the SMME sector’s potential
to contribute meaningfully to job creation,
economic growth and more equal income
distribution. The poor sustainability of start-ups
in South Africa relative to other countries in the
GEM sample also highlights the need for policy
interventions aimed at supporting and mentoring
entrepreneurs through the difficult process of
firm birth. Too often the support offered begins
and ends with the provision of a generic business
plan. Questions also need to be raised about the
quality of early-stage entrepreneurship in South
Africa, particularly regarding the business and
personal management skills of the entrepreneurs.
A primary objective of GEM is to explore
differences in national levels and types of
entrepreneurship and to link these to job creation
and economic growth. The relative prevalence of
opportunity-motivated versus necessity-motivated
entrepreneurial activity provides useful insights
into the quality of early-stage entrepreneurial
activity in a given country. GEM research has
consistently shown that the economic contribution
of opportunity-motivated firms is higher than for
necessity-driven enterprises. The 2005 GEM
Report found that almost a third of necessity firms
had no employees and that the mean number of
jobs created per firm was 1.6. By contrast, the
mean number of employees for opportunity firms
was 4.4, and opportunity firms were more than
four times as likely, compared to necessity firms,
to employ six or more people (van Broembsen et
al., 2005).
Table 4.3 summarises the opportunity and
necessity rates across all countries that parti­
cipated in GEM in 2009. As in Table 4.1, the
countries are grouped according to phase of
economic development. Improvement-driven
 Chapter 4: Entrepreneurship in South Africa in 2009

opportunity TEA (listed in column three of the no other option for work and indicate that the
table) refers to those individuals involved in main driver for being involved in this opportunity
early-stage entrepreneurial activity who claim to is being independent or increasing their income,
be driven by opportunity as opposed to finding rather than just maintaining their income.

Table 4.3: Opportunity and necessity-driven TEA rates across all GEM countries, 2009

Country Necessity-driven Opportunity-driven Improvement-driven

(% of TEA) (% of TEA) opportunity (% of TEA)
Factor-driven economies
Algeria 18 82 51
Guatemala 23 77 30
Jamaica 33 67 45
Lebanon 18 82 60
Morocco 25 75 57
Saudi Arabia 12 88 63
Syria 37 63 43
Tonga 33 77 39
Uganda 45 55 45
Venezuela 32 68 42
West Bank & 37 63 33
Gaza Strip
Yemen 35 65 16
AVERAGE 29 71 43
Efficiency-driven economies
Argentina 47 53 37
Bosnia & Herzegovina 39 61 20
Brazil 39 61 48
Chile 25 75 42
China 48 52 29
Colombia 34 66 45
Croatia 37 63 39
Dominican Republic 34 66 26
Ecuador 32 68 43
Hungary 24 76 45
Iran 35 65 35
Jordan 28 72 35
Latvia 32 68 54
Malaysia 25 75 44
Panama 24 76 59
Peru 28 72 42
Romania 34 66 31
Russia 29 71 37
Serbia 41 59 46
South Africa 33 67 38
Tunisia 20 80 57
Uruguay 22 78 57
AVERAGE 32 68 41

63
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE

Country Necessity-driven Opportunity-driven Improvement-driven

(% of TEA) (% of TEA) opportunity (% of TEA)
Innovation-driven economies
Belgium 9 91 55
Denmark 7 93 56
Finland 19 81 62
France 14 86 67
Germany 31 69 43
Greece 26 74 47
Hong Kong 19 81 49
Iceland 10 90 58
Israel 25 75 48
Italy 14 86 57
Japan 30 70 62
Republic of Korea 45 55 37
Netherlands 10 90 57
Norway 9 91 74
Slovenia 10 90 69
Spain 16 84 41
Switzerland 7 93 67
United Arab Emirates 9 91 79
United Kingdom 16 84 43
United States 23 77 55
AVERAGE 17 83 56
AVERAGE: ALL GEM
26 74 47
COUNTRIES

Although South Africa ranks in the bottom 4.2 South Africa’s

third of all efficiency-driven economies in
terms of overall early-stage entrepreneurial
activity (Table 4.1), Table 4.3 indicates that
South Africa’s ratio of opportunity-motivated
entrepreneurship to necessity - motivated
entrepreneurship is average, relative to the
other countries classified as efficiency-driven
economies. In terms of motivation for starting
a business, almost twice as many South African
respondents cited opportunity as opposed
to necessity. Table 4.3 also indicates that
less than 60% of South Africa’s opportunity-
motivated entrepreneurial activ­­ity falls into
the improvement-driven category. Taken in
conjunction with South Africa’s below-average
scores in terms of entrepreneurial attitudes and
perceptions (Table 4.2), this suggests that South
African entrepreneurs may lack confidence
in their ability to perceive as well as to exploit
potentially lucrative opportunities.
entrepreneurial
activity: 2002 - 2009
The detailed and consistent data sets collected
as part of the GEM survey are useful not only
for cross-national comparisons, but also
allow for meaningful longitudinal studies
of entrepreneurial activity within a given
country. Figures 4.2 to 4.4 compare the main
entrepreneurial activity indices for South Africa
over the period 2002-2009. Although South
Africa joined the GEM project in 2001, the 2001
data is excluded because of improvements in
the survey methodology from 2002 onwards.
No data is included for 2007 because South
Africa did not participate in the adult population
survey in 2007.

64
 Chapter 4: Entrepreneurship in South Africa in 2009

The 2009 adult population data for South economic crisis. A longitudinal study of the
Africa was collected between May and July – a data will therefore also highlight the impact
period when the country was reeling from the of the recession on entrepreneurial activity in
effects of the recession induced by the global South Africa.

TEA (%)

9
8
7
TEA rate (%)

6
5
TEA (%)
4
3
2
1
0
2002 2003 2004 2005 2006 2007 2008
year

Figure 4.2: Prevalence rates of early-stage entrepreneurial activity in South Africa,

2002-2009

80
Proportion of start-up and new firm

70
60
activity (%)

50
Start-up firm
40
New Firm
30
20
10
0
2002 2003 2004 2005 2006 2007 2008
year

Figure 4.3: Start-up and new firm activity in South Africa, 2002-2009

65
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE
90
Percentage within early-stage
80
70
60
activity (%)
50
40
30
20
10
0
2002 2003 2004 2005 2006 2008 2009
year
Figure 4.4: Relative contribution of opportunity and necessity motivation to early-stage
entrepreneurial activity in South Africa, 2002-2009
It is clear that the global economic crisis has had
a deterrent effect on the willingness of South Afri-
cans to engage in entrepreneurial activity. This is
in line with global trends – entrepreneurial activ-
ity declined in two-thirds of the countries partici-
pating in GEM in 2009. Aspirant entrepreneurs
proved to be more resilient in the innovation-
driven economies, with a significant minority of
individuals in the wealthier countries seeing the
recession as increasing opportunities for their
businesses. Attitudes towards entrepreneurship
as a career choice also improved in half of the
wealthier countries (Bosma and Levie, 2009).
Figure 4.2 indicates that the TEA rate dropped
significantly from 2008’s encouraging spike
of 7.8%. The 2009 TEA of 5.9% is in line with
the average rate of 5% recorded for the period
2004 – 2006. The decline in TEA can be
attributed primarily to a 40% fall in the number
of start-ups compared to 2008. South Africa’s
nascent entrepreneurship rate for 2009 was
3.6%, compared to 5.7% in 2008, while the
new firm rate remained relatively stable (2.5%
compared to 2.1% in 2008). Of particular
concern is the drop in established business
rate from 2.3 % in 2008 to a mere 1.4% in
2009. Together with the persistent trend of a
66
Motivated by opportunity
Motivated by necessity
low proportion of new firm activity depicted in
Figure 4.3, this reconfirms that the prognosis
for survival and sustainability of early-stage
businesses in South Africa remains poor.
The GEM 2009 data showed that the economic
downturn reduced the number of individuals
who thought there were good opportunities to
start businesses in many parts of the world, and
South Africa was no exception. Figure 4.4 in-
dicates a reversal of the steady increase in the
contribution of opportunity-motivated entrepre-
neurial activity in South Africa since 2004. In
2008, entrepreneurs were almost four times as
likely to be motivated by opportunity rather than
by necessity, while in 2009 they are only twice
as likely to be opportunity-motivated. Necessi-
ty-driven entrepreneurship has increased from
21% to 33% - possibly in response to the high
levels of retrenchments and loss of almost a mil-
lion jobs in the formal sector over the past year.
The 2009 adult population survey contained
a number of questions aimed at assessing
entrepreneurs’ perception of the impact of the
global recession on their own businesses. Table
4.4 summarises South African entrepreneurs’
perceptions of the business climate in mid 2009.
 Chapter 4: Entrepreneurship in South Africa in 2009
Table 4.4: Entrepreneurs’ views of the business climate, 2009
Starting a business is more difficult,
compared to one year ago
Growing a business is more difficult,
compared to one year ago
The global economic crisis has resulted
in fewer opportunities for your business
Almost a third of the respondents felt that the
global economic crisis had led to reduced
opportunities for their businesses, while close
to two-thirds reported that starting a business
was more difficult in comparison to the previous
year. The drop in both the number of start-ups
as well the proportion of opportunity-motivated
entrepreneurship (Figures 4.3 and 4.4) makes
sense in light of this pessimistic evaluation of the
conditions for starting a business. Almost half
the respondents felt that growing a business
was more difficult in comparison to the previous
year. In terms of perception of growth potential,
South Africa was included among the ten GEM
countries with the highest share of pessimistic
entrepreneurs. Bosma and Levie (2009) point
out that efficiency-driven economies tend
to be fairly strongly linked to global markets
and would therefore experience the effect of
the financial crisis more directly than factor-
driven economies. As a result, the opinions of
entrepreneurs in the efficiency-driven countries
tended to be the most negative on average,
with regard to the conditions for starting and
growing a business.
In South Africa, the global economic crisis has
exacerbated a number of factors that have the
potential to impact negatively on entrepreneurial
activity. Access to finance is regarded as
a key problem facing all entrepreneurs. In
the recessionary climate, access to finance
was complicated by a lack of liquidity in the
financial sector, stricter implementation of the
new National Credit Act (in force since June
2007) and the increased robustness of business
applications demanded by commercial banks.
Many potential entrepreneurs were forced to
Early-stage (TEA) Established business
entrepreneurs owner-managers
57% 66%
47% 47%
32% 31%
resort to government-run agencies such as the
Industrial Development Corporation (IDC),
which reported a 50% increase in applications
for funding. The retail sector came under
significant pressure – consumer spending
contracted for four consecutive quarters,
showing its sharpest decline in 24 years. Since
almost two-thirds of early-stage entrepreneurial
activity in South Africa is in the consumer
services sector, this would have a significantly
negative effect on sustainability of existing
businesses as well as opportunities for new
ventures. The cost of crime, always a critical
factor for small business, has worsened due
to the recession. Crime statistics for 2008/09
indicate a 45% increase in robberies at small
businesses. Overall, more than 70% of robberies
targeted small businesses in 2009. The high
level of crime was ranked as the second most
problematic factor for doing business in South
Africa by the Global Competitiveness Report
2008-2009, and the surge of crime directed at
small business would have acted as a strong
disincentive to potential entrepreneurs.
It is clear that the decline in South Africa’s
performance across the main GEM indices
of entrepreneurial activity can be attributed
largely to the impact of the global economic
crisis. However, it is important not to lose sight
of the persistent trend of low overall early-
stage entrepreneurial activity in South Africa.
Two factors exacerbate the concern evoked by
South Africa’s low TEA rate. Firstly, South Africa
is not a nation that is able to provide generous
welfare benefits to the unemployed. Although
the current government has extended social
grants in an attempt to alleviate the effects of
67
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE
the recession, poverty levels in South Africa
remain high. There are thus no incentives to
choose uninterrupted leisure over attempting to
find some form of employment/self-employment,
as is the case in certain European countries.
Secondly, South Africa has staggeringly high
levels of unemployment relative to the rest of
the GEM sample. According to Statistics SA’s
4th Quarter Labour Force Survey for 2009,
unemployment stands at 24.3%. The expanded
unemployment rate, which includes discouraged
job seekers, is 31.4%.
Although there has been some growth in
the formal sector’s employment capacity –
according to Labour Force Surveys, formal
sector employment rose from 55.5% of
employment in 2001 to 66.6% by 2007 – it
is unlikely that growth in the formal economy
will be able to absorb sufficient people to solve
the unemployment problem. GEM regards the
lack of other means to make a living as well
as fear of becoming unemployed in the near
future as strong factors pushing people into
entrepreneurial activity. One would expect,
therefore, that necessity would serve as a strong
stimulus for an increased TEA rate for South
Africa. According to Cichello (2005), however,
self-employment is a risky venture and the poor
and unemployed, who are already financially
extremely vulnerable, often find it impossible
to contemplate taking on the additional risks
associated with unemployment. In South Africa,
entrepreneurial activity is hindered by a poor
skills base as well as severe environmental
limitations including poverty, a lack of active
markets and poor access to resources. It is
therefore, perhaps, not surprising that many
South Africans do not regard entrepreneurship
as a positive and viable career choice.
4.3 A profile of South on the other hand, is among the most recent
Africa’s entrepreneurs
4.3.1 Gender
Although the ratio of male to female participation
in early-stage entrepreneurial activity varies
considerably across the total sample of GEM
68
countries, reflecting differences in culture
and customs regarding female participation
in the economy, a consistent finding is that
men are far more likely to be involved in entre­
preneurial activity.
The 2009 adult population data shows that
men in South Africa are 1.5 times more likely
to be involved in early-stage entrepreneurial
activity than women are. Although this is slightly
better than the GEM average, the discrepancy
is still cause for concern. Labour Force Surveys
conducted on a quarterly basis by Statistics
SA indicate that, irrespective of population
group, unemployment rates among women are
higher than among their male counterparts.
Finding ways to improve female levels of self-
employment is thus imperative in the South
African context.
As indicated previously, several developing or
emergent economies with a similar GDP per
capita to South Africa, such as Argentina, Chile,
Brazil and Peru, achieved TEA rates that are three
to four times higher than that achieved by South
Africa. The 2009 GEM Global Report indicates
that for many of these Latin American countries,
the gender gap in TEA is low. In Brazil, women are
in fact more likely to be involved in TEA activity
than are men (52% compared to 48% for men).
In its analysis of the dynamics of the gender
gap, the Global Gender Gap Report 2009
explores the gender gap in education. It notes
that several developing countries – among them
Argentina, Colombia, Brazil and Venezuela –
closed their education gender gap even before
the United States did. The cohorts from the
year in which the gender gap was reversed in
these countries are at present over fifty years
old – these countries therefore already have two
generations in which women received at least
as much education as men did. South Africa,
countries to have closed the gender gap in
education, having achieved this benchmark for
cohorts currently in their 30s.
Previous GEM research has shown a strong
link between levels of formal education and
entrepreneurial activity, and the educational
advantage conferred by almost 20 extra years of
equal education is likely to have had a positive
 Chapter 4: Entrepreneurship in South Africa in 2009

effect on the entrepreneurial propensity of Latin
American women. Table 4.5 indicates that Latin
American women participating in the 2009
GEM survey reported significantly higher levels
of belief that they have the knowledge, skills
and experience required to start a business,
compared to South African women. They are
also far more likely to perceive opportunities for
entrepreneurial activity in their areas than are
South African women.

Table 4.5: Female entrepreneurial perceptions, 2009

Country Capabilities perception (%) Opportunity perception (%)

Argentina 56.2 41.5
Brazil 47.0 46.5
Chile 58.5 47.8
Colombia 54.0 46.5
Peru 72.6 59.9
Venezuela 53.1 50.0
South Africa 30.0 29.0

Table 4.6: Involvement in entrepreneurial activity, by gender

Male Female
TEA 60% 40%
Nascent entrepreneur 61% 39%
New firm owner/ manager 58% 42%
Established firm owner/ manager 62% 38%
Opportunity motivated 61% 39%
Necessity motivated 59% 41%

Table 4.6 summarises the GEM 2009
data on male and female involvement in
entrepreneurial activity in South Africa.
Men are still substantially more likely than
are women to be involved in both early-
stage entrepreneurship and established
businesses. GEM research has highlighted the
importance of individuals’ perceptions of their
entrepreneurial ability, their recognition of
start-up opportunities and the extent to which
their social networks include entrepreneurs in
determining whether these individuals become
involved in early-stage entrepreneurial
activity. Table 4.7 indicates that for all three
factors, South African women in 2009 scored
significantly lower than men did.

Table 4.7: Entrepreneurial attitude and perceptions, by gender

Male Female
Have knowledge, skills & experience
41.0 30.0
to start a business
Aware of good business opportunities 41.8 29.0
Personally know an entrepreneur 44.3 35.3

69
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE
Although many of the constraints facing
women in their attempts to start small business
concerns are similar to those facing all small
businesses, the 2006 GEM Report noted that
women face greater difficulties in becoming
entrepreneurial. These obstacles include:
higher levels of domestic responsibility;
lower levels of education (particularly in
developing countries); lack of female role
models in the business sector; fewer business-
orientated networks in their communities; lack
of capital and assets; lower status in society
and a culturally-induced lack of assertiveness
and confidence in their ability to succeed
in business. These factors may prevent
women from perceiving as well as acting on
entrepreneurial opportunities.
Bardasi et al. (2007), in their analysis of
Enterprise Survey data in Africa, found that
once they are already operating businesses,
there are no significant differences in terms of
performance and productivity of the business
between male and female entrepreneurs.
This suggests that Africa has, in their words,
“considerable hidden growth potential in its
women, and that tapping into that potential…
can make a substantial difference for Africa’s
growth and poverty reduction”. Innovation,
which is an integral part of entrepreneurship,
requires new and unique ideas that flourish in
a diverse environment. Interventions aimed at
increasing female participation in the SMME
sector are thus an important strategy for
economic development in South Africa. The
Business Partners Women’s Fund, launched in
2007, is an important initiative in this regard.
Jo’ Schwenke, former MD of Business Partners,
Table 4.8: Involvement in early-stage entrepreneurial activity, by age
Age category 2005
18-24 years 16%
25-34 years 30%
35-44 years 25%
45-54 years 14%
55-64 years 15%
70
notes that his organisation has found women
to be better business risks than men, with a
significantly lower rate of failure. An estimated
14 new jobs are created every time they invest
in a woman-owned business. It is important
that government programmes follow this lead
to enable more female entrepreneurs to take
up meaningful roles in the business community.
4.3.2 Age
The influence of age on entrepreneurial activity
tends to be very similar throughout GEM. The
prevalence of early-stage entrepreneurial
activity tends to be relatively low in the 18-
24 years cohort, peaks among 25-34 year
olds, and then declines as age increases
with the sharpest decrease after the age of
54. According to Bosma et al. (2008), this
reflects the interaction between ‘desire to start
a business, which tends to reduce with age,
and perceived skills, which tends to increase
with age.’
Table 4.8 depicts South Africa’s TEA
involvement over the period 2005-2009,
disaggregated according to age category. The
trend is similar to that found in the overall GEM
sample. South Africans aged between 25 and
44 years are clearly the most entrepreneurially
active, accounting for 54% of all early-stage
activity. The increased entrepreneurial activity
in the 45-54 year group since 2008 is, perhaps,
an indication of a maturing entrepreneurial
population in South Africa who regard
entrepreneurship as a career choice – either
remaining in a successful business or exiting
a business in order to start a new enterprise.
2006 2008 2009
22% 17% 17%
31% 27% 26%
24% 23% 28%
13% 24% 21%
10% 9% 8%
 Chapter 4: Entrepreneurship in South Africa in 2009
Although the low prevalence of entrepreneurial
activity in the 18-24 age cohort is in line with
general GEM trends, it is of concern in the
South African context. The majority of school
leavers in South Africa do not pursue tertiary
studies and therefore form part of the potential
labour force. Statistics SA defines the potential
working population as those aged between
15 and 64 years. Unemployment has affected
primarily women and the youth. According to
the 3rd Quarter Labour Force Survey for 2008,
new entrants accounted for the single largest
share of total unemployment – 42.3% – while
respondents aged between 15 and 34 years
made up 74% of the total unemployed. Second
Quarter Labour Force data for 2009 showed that
the recession had had a particularly devastating
effect on youth employment. In the first half of
2009, the under-30 group accounted for a
quarter of total employment but over half of job
losses. The unemployment rate for the under
30s was 39% compared with 15% for those over
30. If the expanded definition (which includes
discouraged job seekers) was used, the figures
leapt to 47% for the youth compared to 20% for
the over 30s. Young black African women were
the worst affected, with an unemployment rate
of 49% (58% using the expanded definition).
A particularly disturbing finding to emerge
from the labour force data was that of the
younger unemployed, four out of five had never
had a job. GEM research has shown that the
majority of people starting businesses were
employed while developing their business. The
fact that so many young people in South Africa
are excluded from the work arena means that
they will have been denied the opportunity
to access knowledge and develop skills. This
makes it unlikely that they will ever be able to
break into the labour force – either in formal
or self-employment.
The disproportionately high unemployment
figures for the youth highlight the importance
of finding alternative ways of increasing youth
participation in the economy. According to the
2008 Western Cape Youth Report, there are a
number of reasons why young South Africans do
not become involved in entrepreneurial activity.
Although access to finance is a perennial
problem for all small businesses, the youth are
particularly vulnerable to this limitation. Young
people often have no credit history or assets to
serve as collateral in order to secure loans from
financial institutions. They are also less likely to
have accumulated sufficient capital to be able
to use their own savings to finance a business
enterprise. In addition, government programmes
and initiatives aimed at assisting the youth are
poorly marketed at their targets. Few young
people are aware of the programmes available.
A particularly pernicious problem is that the
school system is not producing functionally
literate students. Many school-leavers do not
have sufficient literacy, numeracy and livelihood
skills to be able to participate actively in the
economy. Those that do attempt to engage in
business activities lack managerial, technical
and marketing skills, as well as experience, and
are therefore at a disadvantage in a competitive
and changing business environment. Young
people that cannot find a way to improve their
livelihood are at particular risk of becoming
involved in anti-social behaviours, and it is
thus imperative to find avenues for them to
participate in the economy in a meaningful way.
4.3.3 Population group
Previous GEM research has shown a strong
association between population group and
entrepreneurial activity. Table 4.9 confirms
these findings – namely, that whites and Indians/
Asians are substantially more likely to start a
business than are coloureds or black Africans.
Relative to population size, Indians/Asians are
more than three times, and whites more than
twice as likely, compared to Africans, to be
involved in early-stage entrepreneurial activity.
71
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE

Table 4.9: Involvement in early-stage entrepreneurial activity, by population group

Population group Prevalence in Prevalence in South Ratio of

entrepreneurial African population (%) * entrepreneurs to
population (%) overall group
Black African 64.5 79.2 0.8
Coloured 10.5 9.0 1.2
Indian/ Asian 7.0 2.6 2.7
White 18.0 9.2 1.9

*Mid-year population estimates 2008 (Statistical release P0302)

The persistence of this discrepancy can, to a
large extent, be attributed to the legacy of South
Africa’s apartheid policies, which have had a
fundamental impact on entrepreneurial and
business-related activities within large sections
of the population. The 2008 Western Cape
Youth Report, (Herrington et al. 2008) provides a
succinct analysis of the ways in which apartheid
policies have inhibited the development of black
African businesses. These include: poor levels of
education and skills development; inadequate
business infrastructure development and limited
markets in areas affected by the Group Areas
Act; restrictions on owning property which
reduced the assets available to use as leverage
for loans; and fewer entrepreneurial role models
in previously disadvantaged communities.
Another factor, which in recent years may have
come into play, is the influence of government’s
BEE policies. Equity targets for companies have
led to an increased demand for qualified black
African applicants. Companies are prepared
to pay premium salaries – which increases the
opportunity-cost factor for black Africans with
tertiary qualifications who are considering
starting a business.

Table 4.10: Stage of entrepreneurial activity, by population group

Established Total
Population group Start-up New firm
business
Black African 47% 35% 18% 100%
Coloured 64% 23% 13% 100%
Indian/Asian 30% 35% 35% 100%
White 31% 33% 36% 100%

Table 4.11: Motivation for entrepreneurial activity, by population group

Population group Opportunity- Necessity- Opportunity- Necessity-

motivated (2008) motivated (2008) motivated (2009) motivated (2009)
Black African 73% 27% 62% 38%
Coloured 78% 22% 75% 25%
Indian/Asian 89% 11% 83% 17%
White 82% 18% 87% 13%

72
 Chapter 4: Entrepreneurship in South Africa in 2009

Table 4.10 disaggregates the total number of
individuals involved in entrepreneurial activity
in each population group according to stage
of activity. Table 4.10 indicates that, as in pre-
vious years, businesses started by whites and
Asians are more likely to mature into new and
established firms than those started by black
Africans or, in particular, coloureds. Black Afri-
cans continue to have the lowest prevalence of
opportunity motivation (Table 4.11). The 2008
GEM Report noted that the difference in the
prevalence of opportunity-motivation was less
marked than in previous years. In 2003, white
opportunity-motivated entrepreneurial activity
rates were almost three times higher than black
African opportunity-motivated entrepreneurial
activity rates.
exploit opportunities in the changed economic
landscape.
Perhaps the most important implication of the
above findings is the impact on job creation in
communities. Businesses in the SMME sector
tend to have primarily a local effect. Start-ups
and necessity-driven firms have, in general, lower
potential to contribute to the economy. They
provide few, if any, additional jobs and generate
less income for their owners. African and coloured
entrepreneurial activity, according to Tables 4.10
and 4.11, remains concentrated in this lower
potential area and is unlikely to have much effect
in revitalising local communities and providing
employment. Given the unemployment statistics
depicted in Table 4.12, this is a matter for concern.

In the 2008 survey, the difference between the
rates was less than 10%, suggesting an increas-
ingly positive entrepreneurial attitude amongst
black Africans. However, the 2009 data indi-
cates that these gains have been negated to
some extent by the effect of the recession, with
black Africans being the only group to show
a significant increase in necessity-motivated
entrepreneurial activity. Whites, on the other
hand, are the only group to show an increase
in opportunity-motivated entrepreneurship.
By virtue of their higher (on average) levels of
education and greater access to resources, this
group would be best positioned to perceive and
4.3.4 Sector distribution
Table 4.13 shows the distribution of early-
stage entrepreneurial activity and established
businesses according to industry sector.
The extractive sector includes agriculture,
forestry, fishing and mining; the transformative
sector includes construction, manufacturing,
transportation, communication, utilities and
wholesale distribution; business services include
finance, insurance and real estate; and consumer
services include retail, motor vehicles, lodging
and restaurants, personal services, education
and recreational services.

Table 4.12: Unemployment rate by population group, 4th quarter 2009 (Source: Statistics SA)

Black African Coloured Indian/ Asian White South Africa

28.6 20.8 11.1 4.9 24.3

Table 4.13: Involvement in entrepreneurial activity, by sector

Established business entities

Sector TEA business entities (%)
(%)
Extractive 5.2 2.4
Transformative 16.4 20.9
Business services 11.2 5.5
Consumer services 67.2 71.2

73
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE
A significant majority (more than two-thirds)
of early-stage entrepreneurial activity as well
as established business entities in South Africa
are in the consumer services sector. This sector
distribution is more in line with the factor-
driven economies in the GEM 2009 sample,
rather than with the other efficiency-driven
economies. The efficiency-driven countries
reported an average of 57% of TEA activity
and 55% of established business entities in the
consumer services sector.
Given the low levels of skills and education in
the South African population, it is unsurprising
that the majority of business activity is in the
consumer services sector. Barriers to entry into
this sector, in terms of both skills and capital
required, are low. As a result, however, this is an
over-traded sector populated by low profit margin
businesses and the high level of competition for
limited markets can threaten the sustainability
of these businesses. Another factor to bear
in mind is that the consumer services sector
tends to be particularly vulnerable in periods
of economic slowdown. As noted earlier in this
chapter, the retail sector came under significant
pressure during 2009, showing its sharpest
decline in two decades. This is likely to have
been a strong contributing factor to the drop in
South Africa’s TEA rate as well as established
business rate. Economists predict that, given
South Africa’s high levels of household debt,
consumer spending will be slow to recover. The
fact that a high proportion of TEA entities are
concentrated in such a vulnerable sector means
that South Africa’s disturbingly low rate of new
and established firm activity, relative to other
countries in the GEM sample, is likely to persist.
Table 4.14: Job-creation aspirations in early-stage entrepreneurial entities
Job-creation
2004 2005
aspirations
Yes 4.6% 4.3%
No 95.4% 95.7%
74
The annual SME survey reported the most
resilient sectors to be communication, financial
services and information technology (IT). A
study by the International Data Corporation
into how the high-tech sector will affect South
Africa’s economy over the next four years
found that it offered six times as much job-
creation potential as other industries (quoted
in Business Day, 5 October 2009). The study
concluded that the IT sector has the potential
to create over 90 000 jobs and launch 2 300
new small companies by 2013, adding that
these jobs would be the type of high-level
skills that South Africa needs to compete in
the global economy. However, given the low
levels of education and skills in South Africa
– particularly in maths and science – this
sector remains inaccessible to most
potential entrepreneurs.
4.3.5 Job-creation aspirations
Given South Africa’s high levels of
unemployment, the potential of small businesses
to create job opportunities is a crucial factor.
Table 4.14 indicates the percentage of early-
stage entrepreneurs reporting any current jobs,
or expecting to create any jobs within the next
five years.
The vast majority of early-stage entrepreneurs
have no job-creation aspirations. Even South
Africa’s most entrepreneurial cities have
a relatively low prevalence of job-growth
oriented businesses – in both Cape Town and
Johannesburg only about 15% of start-ups
expect to employ at least ten people within the
next five years (Acs et al, 2008).
2006 2008 2009
4.8% 7.2% 4.7%
95.2% 92.8% 95.3%
 Chapter 4: Entrepreneurship in South Africa in 2009

5.0%

Percentage of Adult Population Between 18-64 years

4.0%

3.0%

2.0%

1.0%

0.0%
Jamaica
India
Venezuela
Mexico
Hungary
South Africa
Serbia
Romania

China
Finland
Spain
Brazil
Croatia
Ecuador
Thailand
Latvia
Iran
Uruguay
Turkey
Dominican Republic
Argentina
Russia
Chile
Peru
Colombia

Belgium
Japan
Greece
France
Italy
Netherlands
Sweden
Germany
Switzerland
Slovenia
Denmark
United Kingdom
Norway
Australia
Israel
Singapore
Hong Kong
Canada
United States
Iceland
United Arab Emirates
Figure 4.5: High-growth expectation early-stage entrepreneurial activity (HEA), 2004-2009
(Source: 2009 GEM Global Report)

Figure 4.5 depicts an analysis of GEM data 4.4 Summary of key

that explores how growth ambitions differ
among early-stage entrepreneurs (Bosma and findings
Levie, 2009). The figure indicates the relative
prevalence of entrepreneurs with high growth
expectations (HEA entrepreneurs) among all • In 2009 South Africa ranked 35th out of 54
TEA entrepreneurs. HEA entrepreneurs are countries with a TEA rate below the average
those who expect that their businesses will (11.7%) of all participating countries.
employ at least 20 people in five years’ time. • South Africa’s TEA rate of 5.9% is
Of the factor- and efficiency-driven countries, significantly lower than the average for
Colombia, China, Peru, Venezuela and Chile all efficiency-driven economies (11.2%) as
exhibit the highest prevalence rates of high- well as the average for all middle to low
expectation entrepreneurship. In general, the income countries (14.8%).
Latin American countries exhibit high levels of • According to the GEM data, a country
HEA. South Africa, on the other hand, is among at South Africa’s stage of economic
the countries showing the lowest HEA rates development would be expected to have
over the period 2004 – 2009. Interventions a TEA rate in the order of 13%, more than
that encourage and stimulate businesses in the double South Africa’s actual rate of 5.9%.
SMME sector to grow are essential if they are • Latin American countries have a
to contribute meaningfully to socio-economic significantly favourable attitude towards
development in South Africa. entrepreneurship and score well above the
average for efficiency-driven economies
It is important to identify those entrepreneurs with respect to entrepreneurial attitudes
with realistic high-growth aspirations, and perceptions. South Africa scores below
and institute policies aimed specifically at average for these indicators. In terms of
supporting them in order to optimise their perceived capabilities, South Africa has
impact on economic growth and job creation. the third lowest score. The discrepancy in

75
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE
entrepreneurial attitudes and perceptions
between South Africa and the efficiency-
driven Latin American economies is likely
to contribute to the significant differences
between their respective TEA rates.
• South Africa’s nascent entrepreneurship
rate of 3.6% is below the GEM average of
5.9% as well as the average for efficiency-
driven economies of 6.1%. In terms of
new firm activity South Africa ranked
40 th out of the 54 countries, with a new
business prevalence rate of 2.5%. This
is significantly lower than the average of
5.2% for all GEM countries and 5.3% for
all efficiency-driven countries.
• In terms of established business activity
South Africa ranked last out of the 53
countries, with an established business
rate of only 1.4%. The average for all
GEM countries is 7.7% while that for all
efficiency-driven countries is 7.9% - almost
six times the rate for South Africa.
• In terms of motivation for starting a
business, almost twice as many South
African respondents cited opportunity as
opposed to necessity.
• The profile of South Africa’s entrepreneurs
has not changed significantly compared to
previous years.
• Men in South Africa are 1.5 times more
likely to be involved in early-stage
entrepreneurial activity than women are.
• South Africans aged between 25 and 44
years are the most entrepreneurially active
group, accounting for 54% of all early-
stage activity.
• The increased entrepreneurial activity
in the 45-54 year group since 2008 is,
perhaps, an indication of a maturing
entrepreneurial population in South Africa
who regard entrepreneurship as a career
choice – either remaining in a successful
business or exiting a business in order to
start a new enterprise.
• A significant majority (more than two-thirds)
of early-stage entrepreneurial activity as
well as established business entities in
South Africa are in the consumer services
sector. This sector distribution is more in
line with the factor-driven economies in
the GEM 2009 sample, rather than with
the other efficiency-driven economies.
The efficiency-driven countries reported
76
an average of 57% of TEA activity and
55% of established business entities in the
consumer services sector.
• Businesses started by whites and Asians
are more likely to mature into new and
established firms than those started by
black Africans or, in particular, coloureds.
• Black Africans continue to have the lowest
prevalence of opportunity motivation.
In 2003, white opportunity-motivated
entrepreneurial activity rates were almost
three times higher than black African
opportunity-motivated entrepreneurial
activity rates. In the 2008 survey, the
difference between the rates was less
than 10%, suggesting an increasingly
positive entrepreneurial attitude amongst
black Africans. However, the 2009 data
indicates that these gains have been
negated to some extent by the effect of
the recession, with black Africans being
the only group to show a significant
increase in necessity-motivated entrepre­
neurial activity.
• The global economic crisis has had a
deterrent effect on the willingness of South
Africans to engage in entrepreneurial
activity. Entrepreneurial activity declined
in two-thirds of the countries participating
in GEM in 2009.
• South Africa’s TEA rate dropped
significantly from last year’s spike of 7.8%.
The 2009 TEA of 5.9% is in line with the
average rate of 5% recorded for the period
2004 – 2006. The decline in TEA can be
attributed primarily to a 40% fall in the
number of start-ups compared to 2008.
• The GEM 2009 data showed that the
economic downturn also reduced the
number of individuals who thought
there were good opportunities to start
businesses in many parts of the world,
and South Africa was no exception.
In 2008, entrepreneurs were almost
four times as likely to be motivated by
opportunity rather than by necessity, while
in 2009 they are only twice as likely to be
opportunity-motivated. Necessity-driven
entrepreneurship has increased from 21%
to 33% - possibly in response to the high
levels of retrenchments and loss of almost
a million jobs in the formal sector over the
past year.
 Chapter 4: Entrepreneurship in South Africa in 2009

• Almost a third of the South African • In terms of perception of growth potential,

respondents felt that the global economic
crisis had led to reduced opportunities for
their businesses, while close to two-thirds
reported that starting a business was more
difficult in comparison to last year.
South Africa was included among the ten
GEM countries with the highest share of
pessimistic entrepreneurs.

77
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE

78
Johan’s story...
Ironing out the Creases for Enterprise Success

SUCCESS SUMMARY

Just over two years ago,

Johan Bosman took the leap
into business ownership with
60Degrees Quality Laundry
House. Making the transition from
life in the corporate world to life
as an SME owner was not easy,
but Bosman developed the right
skills through his MBA to face the
challenges of entrepreneurship.
Today, he has a business making
a mark in the laundry sector.

I knew I didn’t want to

stay in the corporate
world and my ultimate
goal has always been
Becoming “your own boss” is a fantasy to be part of the entre­
entertained by most working adults and yet
only a small percentage of us are ever willing preneurial business
to take the risks involved with making the environment. I did the
entrepreneurial leap. It takes a mix of traits
to succeed at owning your own business – MBA because I knew it
and entrepreneurial newbie Johan Bosman would give me the skills
believes he has taken the right steps to make
his business a sustainable long-term success. I needed to make that
As joint owner of 60Degrees Quality Laundry
jump.
House in Somerset West, Bosman is one of the
few with enough courage to live his dream. continuing reputation as one of the hottest tourist
Although his entrepreneurial venture is still destinations in the world.
considered a very new undertaking, having been
purchased less than two years ago, it is fast Looking back, Bosman says that the success of the
becoming a winner. local tourism sector was a key factor in his decision
to purchase 60Degrees with business partner Barry
He is well-placed to benefit from the economic van Blerk.
windfall that will come with this year’s FIFA
World Cup, as well as from Cape Town’s The decision, like any life-changing one, was

79
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE
not taken lightly. Bosman employed a career
coach for four months and heeded advice
from a top entrepreneurship expert – Dr Mike
Herrington from the Centre for Innovation and
Entrepreneurship at the UCT Graduate School of
Business – in his search for a new venture.
“I met Mike while doing my MBA at the GSB in
2006 and he advised that tourism and hospitality
was a long-term sustainable industry in Cape
Town. That helped me to narrow my search for a
good business opportunity.”
Bosman claims that his time studying at the GSB
was another bridge he had to cross before taking
the risk of buying his own business.
“I knew I didn’t want to stay in the corporate world
and my ultimate goal has always been to be part
of the entrepreneurial business environment. I did
the MBA because I knew it would give me the
skills I needed to make that jump – I was hoping
the light would come on at the end of the tunnel
and it did!”
There is a direct
correlation between your
own level of commitment
and the performance of
your company.
Along with his MBA, Bosman has a BComm
with Honours in Marketing from the University
of Stellenbosch. It was this qualification that
helped him to make a rapid rise in the corporate
world whilst in his twenties. His entrepreneurial
ambitions, however, were too strong and his wise
choice to move into that sphere has now paid off.
The company today employs 110 staff and
includes top names such as the Table Bay Hotel,
the Cape Grace and the Victoria & Alfred Hotel
amongst its client base.
Having 110 people working for the company,
though, is one of the biggest challenges he and
Van Blerk face each day. “There are constant HR
complexities to deal with when you have this many
80
employees,” says Bosman. “The last four to five
months have been a big learning curve.”
So what, in Bosman’s opinion, are the other fac­
tors needed for entrepreneurial success – besides
business acumen and educated decisions on
opportunities and challenges?
You need patience –
whether you are buying
an existing enterprise or
starting something new
you need to be patient
and allow for changes to
gradually take place.
“You need patience – whether you are buying
an existing enterprise or starting something new,
you need to be patient and allow for changes
to gradually take place,” says Bosman. “You
also need to be willing to take a risk – the
risk associated with owning your own business
is much greater than that experienced in a
corporate environment.
There is a direct correlation between your own
level of commitment and the performance of your
company – something which is not as obvious when
working in a large organisation.”
Other traits Bosman believes are critical for a
winning business are: self-confidence; multitasking
and having a good understanding of the various
disciplines of a business i.e. finance, marketing
and HR; being financially savvy – “if you don’t
have a solid financial background then take on
a partner that does,” says Bosman; and finally, “if
you aren’t a natural entrepreneur, then don’t try to
become one!”.
Despite such clear ideas on what is needed
for a top entrepreneurial venture, Bosman
admits these are likely to change and develop
as he gains more experience. In the meantime,
however, it looks as though Bosman, Van
Blerck and 60Degrees are well-placed for
future successes.
Samantha’s story...
Experience the Heart and Homes of Cape Town
SUCCESS SUMMARY
Samantha Mtinini’s company, Camissa
Travels, is giving tourists the opportunity
to experience Cape Town in a
completely different way. Her success
can be attributed to an amazing idea,
and the heart to give a little back to the
impoverished communities in the city.
With the vision to provide international
tourists with a real, meaningful and valuable
Cape Town experience, Samantha Mtinini
(36) started a township tour company called
Camissa Travels.
The company is unlike most other tour companies,
where people are taken to top tourist attractions
and shown only the best sights and sceneries in
Cape Town. Mtinini wanted to do something
different and saw a gap in the market for a tour
company which could offer a more cultural and
community-based experience.
“When tourists leave Cape Town International
Airport, no matter what direction they go and what
their ultimate destination is, they are bound to see
township areas during their journey – tin roofs,
wooden structures and a way of life which most of
them have never seen up close.”
Camissa Travels aims to take tourists into areas
like Langa, Gugulethu and Bonteheuwel on the
Cape Flats to show them how people live in these
areas. “We introduce them to the colourful and
rich culture of the people who inhabit these areas,
take them into some of the homes and show
them schools, churches, community centres and
restaurants in an effort to give them an all-round
and real experience,” says Mtinini.
81
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE
Mtinini points out that most tourists give back
to the communities they visit after seeing how
wonderful the people are, but also the poverty that
many of them live in. This community outreach is
an important aspect of her business vision.
Things came together
quickly because I had good
contacts within the industry
and partners who helped
me start the business,
but there did come a time
when I felt that I needed
some practical business
training to help me grow
the business.
“Sometimes tourists will bring along little gifts
for people, or if we visit schools, they will make
donations for books and so forth. Even long after
the tourists have left the country we get them
calling us, enquiring about people they have met
and offering to help them further,” says Mtinini.
Born and raised in the Eastern Cape, Mtinini was
always interested in tourism. She came to Cape
Town 12 years ago to pursue her studies, with the
dream of working in the tourism industry.
“I was privileged enough to attend the Cape
Peninsula University of Technology, where I
graduated with a diploma in Tourism Manage­
ment. Thereafter my career began as a tour guide
on Robben Island,” she says.
This was a really good experience for her, but
Mtinini always wanted to do things her own way –
and had quite an appetitive for controlling her own
time. She thus soon made the move to working as
a freelance tour guide.
In 2006, at the age of 32, Mtinini had the idea for
Camissa Travels – and the headstrong, diligent
82
and passionate businesswomen committed
her­s elf to starting her own tourism venture.
“Things came together quickly because I had good
contacts within the industry and partners who
helped me start the business, but there did come
a time when I felt that I needed some practical
business training to help me grow the business,”
said Mtinini.
She found out about the Raymond Ackerman
Academy based at the UCT Graduate School of
Business through a news article, and started a
six-month business skills course in January 2008.
Mtinini’s business has experienced a growth spurt
since then, as she had hoped. Today it offers more
services with more tour vehicles, and she has big
plans for even more growth.
“Although the global recession has been a
challenge, the business is doing well and I am
hoping for lots more growth in the future. The
Ackerman Academy course really helped me to
gain the confidence and skills I needed to do this,”
she says.
Her future plans include buying property to use
as a backpackers’ hostel for the tourists who
make use of her tour services, and developing her
community outreach further so that her business
can give more effectively and sustainably to the
poor communities which open their hearts and
homes to her clientele.
The Ackerman Academy
course really helped me
to gain the confidence
and skills I needed to do
this.
“I am excited every day to go to work because
I love what I do. I love the fact that with the
business I am giving an international audience
a chance to really experience our city, and
that through them and their generosity our
communities are also benefiting,” she says.
 Chapter 5
South Africa’s Entrepreneurship Environment:
Findings from the 2009 National Experts Survey
5.1 The Entrepreneurial
Framework Conditions
The GEM model explicitly acknowledges that
entrepreneurial activity within countries is
influenced by the specifics of the national political,
social, cultural and economic environment. The
features that are expected to have a significant
impact on the entrepreneurial sector are
captured in the nine Entrepreneurial Framework
Conditions or EFCs, which are described in Table
5.1. These conditions can either foster or constrain
entrepreneurial activity and development. The
National Experts’ Survey (NES) provides insights
into the ways in which these EFCs shape the
South African entrepreneurial climate. The 36
experts who participated in the 2009 survey are
listed in Appendix C.

Table 5.1: The GEM Entrepreneurial Framework Conditions (Source: 2009 GEM Global Report)

Framework condition Description

EFC1: Financial The availability of financial resources, equity, and debt, for new and growing
support firms, including grants and subsidies.
EFC2: Government The extent to which government policies, such as taxes or regulations, are
policies either size-neutral or encourage new and growing firms. There are two
sub-divisions – the first covers the extent to which new and growing firms
are prioritised in government policy generally; and the second is about the
regulation of new and growing firms.
EFC3: Government The presence and quality of direct programmes to assist new and growing
programmes firms, at all levels of government (national, regional, municipal).
EFC4: Education and The extent to which each level of the education and training system
training incorporates training in creating/ managing new, small or growing business
entities. There are two sub-divisions – primary and secondary school
entrepreneurship education and training; and post-school entrepreneurship
education and training.
EFC5: Research and The extent to which national research and development will lead to new
development transfer commercial opportunities, and whether or not these are available for new,
small and growing firms.
EFC6: Commercial The presence of commercial, accounting and other legal services and
and professional institutions that allow for or promote the emergence of small, new and growing
infrastructure business entities.
EFC7: Internal market The extent to which commercial arrangements undergo constant change and
openness redeployment as new and growing firms compete with and replace existing
suppliers, subcontractors and consultants. There are two sub-divisions:
market dynamics, i.e. the extent to which markets change dramatically from
year to year; and market openness, i.e. the extent to which new firms are free
to enter existing markets.
EFC8: Access to Ease of access to available physical resources – communication, utilities,
physical infrastructure transportation, land or space – at a price that does not discriminate against
new, small or growing firms.
EFC9: Cultural and The extent to which existing social and cultural norms encourage, or do not
social norms discourage, individual actions that might lead to new ways of conducting
business or economic activities which might, in turn, lead to greater dispersion
in personal wealth and income.

83
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE
5.2 An assessment
of South Africa’s
entrepreneurial
environment
In order to assess the national conditions
influencing entrepreneurial activity in South
Africa, experts were asked to complete a closed
questionnaire consisting of 97 statements
about factors relating to our entrepreneurial
environment. Each response was measured on
a five-point Likert scale where a score of 1=
completely false, 2=partly false, 3=neither
true nor false, 4=partly true and 5=completely
true. The statements were phrased so that a
score of four or five would indicate that the
expert regarded the factor as positive for
entrepreneurship, while a score of one or
two would indicate that the expert regarded
the factor as negative for entrepreneurship.
The data obtained from the 36 respondents
was analysed in order to determine the mean
score for each category of questions. The
results are depicted in Table 5.2. The table is
organised according to descending means –
in other words, the highest ranked categories
are those about which the experts feel more
positive, while the lowest ranked categories
are seen as the most underdeveloped. On the
Lickert scale of five, a mean score of three is
regarded as average.
Table 5.2: Summary of experts’ assessment of the entrepreneurial environment
Category
Access to physical infrastructure and services
Access to professional and commercial infrastructure
Vocational, professional and tertiary-level entrepreneurship education
Concrete government policies: entrepreneurship priority and support
Internal market dynamics
Cultural and social norms
Internal market burdens
Financial environment and support
Government policies: taxes, bureaucracy
Primary and secondary level entrepreneurship education
Government programmes
Research and development transfer
84
It is clear from Table 5.2 that the experts regard
South Africa’s entrepreneurial environment as
generally mediocre. Only one of the categories
(access to physical infrastructure and services)
achieved a mean score of average or above
average (i.e. a mean score of 3 or above),
while not a single category was assessed as
good or very good (a mean score of 4 or
above). The most negative assessments cluster
around the areas of government programmes
and poli­cies, school-level entrepreneurship
education and training, and research
and development transfer. Government
policies/ programmes and education and
entrepreneurial capacity have been among
the most frequently cited limiting factors since
2001. Research and development transfer
has been ranked last since 2006. The Global
Competitiveness Report 2009-2010 classifies
South Africa as being in the efficiency-driven
phase of economic development. Economies
at this stage of development need to develop
more efficient production processes and to
improve the quality of products. Technology
is an important productivity enhancer, and
South Africa’s poor score for research and
development transfer is thus cause for concern.
Table 5.3 identifies the three EFCs with the
lowest scores as well as the three with the highest
scores for each country that participated in
the 2009 national experts survey. In most of
the countries, entrepreneurship education and
training in primary and secondary schools is
Mean score
3.15
2.91
2.86
2.78
2.76
2.70
2.45
2.41
2.26
2.18
2.13
2.04
 CHAPTER 5: South Africa’s Entrepreneurship Environment: Findings from
the 2009 National Experts Survey
ranked as one of the three worst performing
EFCs. South Africa’s low score on this item
is thus not unusual but is part of a broader
problem that transcends geography as well
as stage of economic development. However,
the South African experts emphasised that our
problem lies not so much with the quality of
entrepreneurship education and training, but
with the deficiencies in the basic education
system. This concurs with the findings of
the 2005 GEM Report, which compared the
relationship between educational attainment
and entrepreneurial propensity in developing
countries. The report showed that it is not
only the number of years of education that
are important, but also the quality of that
education. In many developing countries,
the probability of secondary school leavers
owning and managing a new firm was shown
to be almost as high as for those with post-
secondary education. In South Africa, however,
the proportion was 77% lower for secondary
school leavers compared to those with tertiary
education. A 2006 report by the Institute of
Justice and Reconciliation, entitled “Schools,
skills and citizenship”, described nearly 80%
of schools as “essentially dysfunctional…
providing an education of such poor quality
that they constitute a significant obstacle to so­
cial and economic development”. Schooling,
in many cases, does not seem to prepare
students for further training, with many young
people leaving the schooling system without
becoming functionally literate and numerate.
Research and development transfer, South
Africa’s lowest ranked EFC, is seen as a
particular concern by 55% of the efficiency-
driven economies. Of greater concern is
South Africa’s low score for government
programmes. South Africa is one of only
two efficiency-driven countries, and seven
countries overall, to rank government
programmes as one of the three worst
performing EFCs. In its White Paper on Small
Business (1995), the government identified
the SMME sector as an important vehicle for
addressing the challenges of job creation,
economic growth and equity. It committed
itself, in the words of Trevor Manuel, to “doing
all that we can to help create an environment
in which businesses can get on with their
job”. The initiatives, programmes and support
agencies instituted by the government
have, however, clearly fallen short of these
aspirations. The Western Cape Youth Report
(2008) highlighted a number of shortfalls
in government programmes. These include:
poor marketing of the initiatives, especially
in the rural areas; a focus on Gauteng, with
restricted access to government programmes
in the remaining eight provinces; and a lack of
qualified and experienced personnel, leading
to inefficient use of the resources available.
Nepotism, corruption, and the prioritisation
of “jobs for buddies” above the need for
competent managers and administrators,
have exacerbated the poor performance of a
number of government programmes.
85
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE

Table 5.3: Entrepreneurial Framework Conditions valued most positive (+) and most
negative (-), per GEM country 2009

1. Finance 4a. Education – prim. & 7a. Internal Market –

2a. Nat. policy – general second. dynamics
policy 4b. Education – post 7b. Internal Market –
2b. Nat. policy – school openness
regulation 5. R&D transfer 8. Physical
3. Government 6. Commercial infrastructure
programmes infrastructure 9. Cultural & social
norms
1 2a 2b 3 4a 4b 5 6 7a 7b 8 9
Factor-driven economies
Bosnia & Herz. - - - + + +
Guatemala - - - + + +
Jamaica - - + - + +
Saudi Arabia + - - - + +
Syria - - - + + +
Tonga Islands - - + - + +
Uganda - - - + + +
Venezuela - - - + + +
Efficiency-driven economies
Argentina - - - + + +
Brazil - - - + + +
Chile + - - - + +
Colombia - - + - + +
Croatia - - + + - +
Dominican - - + - + +
Rep.
Ecuador - - + - + +
Hungary - - - + + +
Latvia - - - + + +
Malaysia - - + - + +
Panama - + - - + +
Peru - - + - + +
Russia - - - + + +
Serbia - - + + + -
South Africa - - + - + +
Tunisia + + - - - +
Uruguay + - + - + -
Innovation-driven economies
Belgium - - + - + +
Denmark - + - + - +
Finland + - - + - +
Germany - + - - + +
Greece - - - + + +
Hong Kong - + - - + +
Iceland - - - + + +
Israel - - - + + +

86
 CHAPTER 5: South Africa’s Entrepreneurship Environment: Findings from
the 2009 National Experts Survey

1. Finance 4a. Education – prim. & 7a. Internal Market –

2a. Nat. policy – general second. dynamics
policy 4b. Education – post 7b. Internal Market –
2b. Nat. policy – school openness
regulation 5. R&D transfer 8. Physical infrastructure
3. Government 6. Commercial 9. Cultural & social
programmes infrastructure norms
1 2a 2b 3 4a 4b 5 6 7a 7b 8 9
Innovation-driven economies
Italy - - - + + +
Netherlands - - + - + +
Norway - + - + - +
Slovenia - - + + + -
South Korea - + - - + +
Spain - - + - + +
Switzerland - - + + - +
Un. Arab - - - + + +
Emirates
United - - - + + +
Kingdom
USA - - - + + +

5.3 Key constraints to and political, institutional and social context.

entrepreneurial
activity
In addition to the closed questionnaire, the
experts were asked to identify and comment on
the three most important factors constraining
entrepreneurial activity, the three most
important factors fostering it, and to make
three recommendations aimed at stimulating
entrepreneurship in South Africa. To allow
for analysis, the responses were grouped
into 14 categories: the nine entrepreneurial
framework conditions as well as capacity for
entrepreneurship; economic climate; work force
features; perceived population composition;
There was considerable consensus among
the experts about the key factors constraining
entrepreneurial activity (Table 5.4). The top
three areas have been highlighted as critical
factors since South Africa first participated
in GEM in 2001. Table 5.4 includes the
GEM average for each of the key constraints
identified by the South African experts. There
is no difference in the assessment of financial
support, and government policies are clearly
regarded as having a negative impact on
entrepreneurship in a significant proportion of
the GEM countries. The biggest discrepancy
is in the area of education and training, cited
by more than two-thirds of the South African
experts compared to a GEM average of less
than a third.

Table 5.4: Key factors constraining entrepreneurship

Category Percentage of South African Average % of GEM experts

experts citing this factor citing this factor
Education and training 69 28
Government policies 61 50
Financial support 50 49
Capacity for entrepreneurship 25 15
Market openness 22 13

87
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE
5.3.1 Education and training
Perhaps the most crucial, as well as the
most pernicious, of the factors is education
and training. The South African experts
raised concerns not only about the level of
entrepreneurial education and training but,
more pressingly, about the quality of basic
education in this country. The education system
is clearly failing a large proportion of South
Africa’s youth. According to Azar Jammine, the
chief economist at Econometrix, 60% of the
pupils who entered the school system twelve
years ago never made it to matric, while 39% of
the remainder who wrote the senior certificate
exams in 2009 failed (Cape Times Business
Report, 10 February 2010). The skills shortage
in the country is seen by many in the business
environment as a major factor hindering
economic growth and business efficiency. The
Global Competitiveness Report 2009–2010
cites South Africa’s inadequately educated
workforce as the second most problematic
factor for doing business in the country. South
Africa is ranked 45th out of 133 countries overall
by the GCR. However, this ranking plummets to
107th in terms of the quality of primary education
(down from 104th last year), 119 th for quality of
higher (secondary and tertiary level) education
and training (down from 110 th last year), and
a dismal last in terms of the quality of maths
and science education. It is of grave concern
that, while South Africa’s overall ranking
has remained stable, all three educational
indicators have deteriorated since the 2008-
2009 survey. The results from the pilot National
Benchmark Tests, released in September 2009,
reinforce the bleak assessment of educational
quality in this country. The tests evaluated first-
year university students in terms of their literacy
and mathematical proficiency. Less than half
Table 5.5: Entrepreneurial activity across selected African countries, 2009
Country Nascent New firm
entrepreneurship rate ownership rate
South Africa 3.6
Tunisia 2.2
Morocco 6.9
88
the students were found to be proficient in
terms of academic literacy. Only a quarter of
the students were proficient in quantitative
literacy (which tests the ability of students to
manage situations or solve problems using
basic quantitative information). A mere 7% of
students were found to be proficient in the skills
needed to study first-year maths.
A review of South Africa’s performance in the
2003 Trends in International Mathematics and
Science Study (TIMSS) survey is of particular
significance with respect to the quality of
maths and science education in South Africa.
This international achievement test assesses
mathematics and science knowledge and
skills, based on the school curriculum for
Grade 4 and Grade 8 learners. Perhaps the
most disturbing finding is that, in all of these
surveys in which South Africa has participated,
it has been ranked last. In 1995 South Africa
was the only African country to participate. In
1999 38 countries participated, including a
further two African countries – Morocco and
Tunisia. In 2003 50 countries were surveyed
including two additional African countries,
namely Botswana and Ghana. Not only did
these African countries perform better than
South Africa, but there was evidence that other
African countries would also have performed
better than South Africa had they been included.
Both Morocco and Tunisia participated in the
2009 GEM survey. Table 5.5 summarises their
performance, relative to South Africa, across
all stages of entrepreneurial activity.
It is clear from Table 5.5 that both Tunisia
and Morocco outperform South Africa in
terms of entrepreneurial activity. Of particular
significance are the substantially higher new
and established business rates for these two
TEA Established
business
ownership rate
2.5 5.9 1.4
7.2 9.4 10.2
9.4 15.8 15.2
 CHAPTER 5: South Africa’s Entrepreneurship Environment: Findings from
the 2009 National Experts Survey
countries, compared to South Africa. GEM
research has consistently shown an association
between educational levels and success in
entrepreneurial ventures, and South Africa’s
poor skills level is certainly an important
contributing factor to the country’s below-
average entrepreneurial capacity.
A report released in February 2009 by
accounting firm Grant Thornton notes that this
is the third consecutive year that a shortage of
skilled workers has been cited by privately-owned
businesses as the major impediment to growth
in South Africa. According to a study by human
resources group Landelahni (quoted in Business
Day, 9 March 2009) South Africa continues to
suffer a severe shortage of qualified, competent
and experienced artisans. The study showed
that the number of artisans tested across all
trades increased from 15 000 in 1970 to 26 500
in 1986, while those who passed trade tests
increased from 6 000 to 13 500 over the same
period. However, since 1986 the number tested
has dropped to 9 041, while those passing trade
tests had dropped to a mere 3 222 by 2006.
The chronic shortage of technical skills in South
Africa has serious implications for economic
growth, as the development of infrastructure
and the provision of services such as electricity
are hampered by a lack of suitably qualified
personnel. These factors have a serious impact
on the sustainability as well as growth potential
of SMMEs.
5.3.2 Government policies
The percentage of South African experts citing
government policies as a key constraining fact­
or increased significantly from 40% in 2008 to
61% in the 2009 survey. The experts highlighted
inefficient government bureaucracy, restric­tive
lab­our regulations and a lack of suitable tax
breaks for smaller businesses as major obsta­­c­les
to business growth. Government bureaucracy
and labour regulations also feature strongly
in the 2009-2010 Global Competitiveness
Report’s list of the most problematic factors for
doing business in South Africa (in 3rd and 4th
positions, respectively).
South Africa ranked 90 th (out of 133 countries)
in labour market efficiency, with inflexible hiring
and firing practices (125th), a lack of flexibility in
wage determination by companies (123rd), and
poor labour-employer relationships (121st). This
certainly does not contribute to an environment
that fosters competitiveness. Instead, inflexible
labour practices hamper innovation and breed
a culture of entitlement. Bosma and Levie
(2009) argue that strictness of employment
protection has a negative impact on high-
expectation entrepreneurial activity (HEA) in
particular. As indicated earlier (Figure 4.5),
South Africa is among the countries showing
the lowest HEA rates over the period 2004 –
2009. In their analysis, Bosma and Levie note
that entrepreneurs faced with strict employment
protection laws (particularly in terms of hiring
and firing) will perceive the barrier to growing
their business to be high. This reduces the
attractiveness of entrepreneurship for these
high-potential individuals. They argue that
lowering employment protection may well have a
beneficial long-term consequence for employees,
given that HEA entrepreneurs expect to create at
least 20 jobs each within the next five years.
With respect to inefficient bureaucracy, the
experts highlighted the red tape associated
with starting up and managing a business.
Regulations associated with starting a business
have eased in recent years – in 2007 nine
procedures were required, taking 35 days; in
2010 this has been reduced to six procedures,
taking 22 days. Compared to Mauritius (Africa’s
top performer in Doing Business 2010), however,
there is still significant room for improvement.
Starting a business in Mauritius involves five
procedures and takes a mere six days. Egypt,
one of the top African performers in terms of
reforms which have improved the ease of doing
business in the country, requires six procedures
for business start-up which take seven days (a
third of the time required in South Africa to
complete the same number of procedures). The
Doing Business 2010 report quotes a recent
study that shows that simple business start-up
is critical for fostering formal entrepreneurship.
According to the study, economies with efficient
business registration have a higher entry rate as
well as greater business density. Given South
Africa’s persistent below-average performance
in all the GEM entrepreneurship indicators,
simplifying business start-up is likely to be an
important factor in fostering entrepreneurship
in this country.
89
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE
A number of other policies that have a
marked impact on business efficiency were
also mentioned, including the government’s
ineffective policies on crime and its BEE
initiatives. The Global Competitiveness Report
2009-2010 ranked the poor security situation as
the most problematic factor for doing business
in South Africa. In terms of the business costs
of crime and violence South Africa ranks 133rd,
and 106th for belief that the police are able
to provide protection from crime. The experts
felt that the government’s BEE criteria placed
additional administrative and financial burdens
on small businesses, which had a negative
impact on their profitability and sustainability.
In the words of one expert: “Government is too
keen to tie entrepreneurial activity to its own
programmes of social justice, black economic
empowerment and service delivery. Since
entrepreneurial activity is not understood as a
social utility in its own right, it gets little help
and lots of obstruction from government, even
as government claims to be supporting it.”
5.3.3 Access to finance
The finding that access to finance is a key
problem is a common feature of research
on problems facing all entrepreneurs and is
apparent in research done in both developed
and developing countries. Inadequate funding
to start a business has been indicated as a
primary barrier to starting a business for many
potential entrepreneurs. Many entrepreneurs
raise the start-up capital from their own or
family savings rather than approaching formal
institutions or agencies. Financial institutions
generally require collateral and formal business
records as criteria for considering a loan. As
a result, business owners who lack collateral
or who have not kept formal records for their
business are less likely to be successful in
approaches to financial institutions. Given
that start-up funding for small businesses often
comes from personal savings or money from
families, the youth, women and people in rural
areas are likely to be particularly disadvantaged
in their attempts to start small businesses.
A number of government initiatives exist to
assist with funding of entrepreneurial ventures,
including Khula Enterprise Finance, Small
Enterprise Development Agency (SEDA), the
90
Industrial Development Corporation (IDC)
and the National Youth Development Agency
(NYDA). A problem that exists is that many of
these initiatives are poorly marketed with respect
to their targets. They also tend to be concentrated
in the urban areas, and particularly in Gauteng.
The Western Cape Youth Report notes that
all programmes have a significantly higher
recognition factor in Gauteng, and queries
whether the other provinces are being sidelined
in this respect.
A number of experts noted that a lack of seed
funding for small start-ups is a constraint on
entrepreneurial activity. South Africa has a
particular need for micro-finance initiatives,
along the lines of those in developing count­
ries such as Kenya, India and Bangladesh.
These countries have devised highly efficient
micro-finance structures, where lending
institutions are able to manage the risk of default
and provide small loans to a number of small-
scale entrepreneurs. Although South Africa does
have organisations that provide finance to micro-
and entry-level enterprises, few of these have
low default rates on the loans and many are not
easily accessible to their target groups.
It is important to note that although access
to finance is a necessary factor in growing
entrepreneurial activity, it is not a fundamental
factor. Providing finance in the absence of
adequate infrastructure, market opportunities
and business and management skills is unlikely
to lead to an increase in the number of
successful businesses.
5.4 Key recommendations
from national
experts
An important focus of the national experts’
survey is not only to identify key weaknes­
ses in the entrepreneurial environment, but
also to obtain precise and practical recom­
mendations that can be used to inform po­l­icy
decisions. The key recommendations offered
by the 2009 panel of experts are summarised
in Table 5.6.
CHAPTER 5: South Africa’s Entrepreneurship Environment: Findings from
the 2009 National Experts Survey

Table 5.6: National experts’ recommendations to stimulate entrepreneurial activity

Category Recommendations
Education • Improve basic education, with special emphasis on numeracy, literacy and vocational
and training. South Africa should employ volunteers from the UK and US to assist in raising
training maths and English competency in South African schools.
• Improve education in business skills at school level to stimulate entrepreneurial capacity
in the youth.
• Increase investment in training programmes and educational institutions in the fields of
maths and science.
• Extend financial literacy and vocational training programmes to the unemployed.
• Establish a wide-ranging apprenticeship system to provide artisan skills, especially to
young people.
• Provide up-to-date training programmes that focus on the entrepreneurs’ needs, rather
than outdated programmes that cater predominantly for general managers.
• Entrepreneurial trainers and consultants must themselves be well-trained and/or
experienced in the specific area of expertise they offer.
• Enterprise support programmes must be properly and regularly evaluated, and constantly
improved.
Govern­ • Introduce policies that reduce the cost of doing business: set up costs (e.g. administration
ment costs such as licensing, statutory requirements), telecommunications, BEE scorecard.
policies • Simplify business registration procedures, e.g. a single form of maximum three pages for
bank/ tax/ CIPRO. Provide online facilities (where possible) for forms, returns, and access
to other entrepreneurs.
• Simplify tax regulations for start-up entrepreneurs.
• Liberalise the labour market, or introduce a two-tier labour market with increased
flexibility for smaller companies.
• Government should aggressively incentivise entrepreneurship through greater
development of specialised economic zones; providing tax breaks for businesses below
certain revenue thresholds and lowering barriers to entry in certain industries.
• Refine the Preferential Procurement Act and institute better performance management of
the implementers of the Act.
Financial • Simplify funding application processes to accommodate the reality of the majority of
support South African entrepreneurs.
• Ensure that the provision of start-up funding is coupled to ongoing mentorship, training
and access to support services.
• A full audit should be done on all organisations (private and government) that offer
funding/ funding advice to SMMEs. Once the successful organisations have been
identified, they should be partnered with government funding agencies such as Khula to
ensure that best-practice models are replicated.
Other • Create clusters/ incubators/ business hubs – including entrepreneurs as well as commercial
and professional support structures – so that start-ups can be assisted in a more protected
and supportive environment. This is particularly important in rural and semi-rural areas
where poor infrastructure (physical and commercial) is a major barrier to small businesses.
• Provide incentives for high-growth entrepreneurial ventures, especially in the tech­
nology sector.
• A societal ethos of self-sufficiency rather than state-dependency should be inculcated from
primary school level.
• All current government support programmes for new and small businesses should be
privatised. In general, government-administered programmes are ineffective at best and
corrupt at worst.

91
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE

92
Nontwenhle’s story...
Working Hard for a Taste of Sweet Success
Lots of people love chocolate. In fact, most
people love chocolate. But Nontwenhle
Mchunu is different – not only is she a
chocolate connoisseur, but the 27-year-old
is building a life around chocolate-making
as an entrepreneur and has an unflinching
dedication to making things happen for her
emerging business.
Making chocolate is an art that requires a
lot of research, experimentation, tasting and
appreciating, says Mchunu, and while this may
sound like the best job in the world, the challenges
facing entrepreneurs in South Africa are many.
Mchunu, however, is committed to getting the
training and skills to make her business, Ezulwini
Chocolate – which means “Heaven” – a success.
It was this gritty determination and ambition to
succeed that secured her a place at the
SUCCESS SUMMARY
For this young entrepreneur a dream was
realised when she was able to start her
own chocolate manufacturing company
called Ezulwini Chocolate. Ezulwini
means “Heaven” and Mchunu’s products
are proving to be just that. The success
she enjoys today can be attributed to all
her hard work, passion and determination
to get the right education.
Raymond Ackerman Academy of Entrepreneurial
Development at the UCT Graduate School of
Business in 2006.
She showed great flair during the Ackerman
Academy programme in forging a relationship
with the Protea Breakwater Lodge based at
the UCT GSB. She began supplying them with
chocolates on a monthly basis and took her
biggest order for 300 boxes from the hotel during
this period.
But it has been a long journey for the young
entrepreneur, who was born and raised in the
rural town of Nkandla in KwaZulu-Natal. After
completing her matric, she went to work for her
father in the family business, but dreamed of
starting a business of her own.
At 20 she started a home-based chocolate making
business, taking small orders and focusing on
corporate clients in Durban. When she registered
her business at 21, she soon ran into a common
challenge that many entrepreneurs encounter –
gaining access to finance.
“I tried a lot of places to access finance, including
government agencies, but it was not easy and I
was passed from pillar to post with no result,”
says Mchunu.
Exasperated by the lack of support, she made the
93
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE
bold decision to move to Cape Town with family
who were moving down. She arrived in Cape
Town in 2004, and set about researching and
sourcing opportunities with renewed vigour.
Her research took her to UCT and it was there
that she learnt about the Raymond Ackerman
Academy, which focuses on developing entre­
preneurial ability in young people between the
ages of 18 and 23 years.
It was extremely valuable
to learn about new ideas
and technology in the
market and experience
the leading edge of
innovation.
Raymond Ackerman personally donated the funds
in 2005 to start and keep the institution and its
training programmes running in perpetuity.
“The Academy turned out to exceed all my
expectations – it was such a positive, supportive
environment which is so crucial for anyone with
business ambitions. While I always believed
I could do something this was the platform I
needed to help me get there,” she says.
She adds she also met a great number of
influential people and organisations, which has
expanded her network greatly.
One of these was Peggy Klement, the then
General Manager of the Protea Breakwater
Lodge, who Mchunu says has become her
industry mentor. The relationship with Klement
also sparked Mchunu’s opportunity to supply
three Protea Hotels with her chocolates.
Her Academy experience also fostered a hunger
to learn and grow further through education,
and Mchunu dreamed of studying the art of her
field at one of the world’s best institutes.
94
“Making chocolate is an art and there are also
strict regulations, such as health regulations and
quality standards that go with it. This makes it
all the more important to get quality, specialised
training,” she says.
An angel in her life came in the form of Raymond
Ackerman, whom she met during her studies at
the Ackerman Academy. Having heard of her
ambitions, he too was willing to lend a hand. This
led to the Pick n Pay Foundation providing the
funding for training in London.
She says a highlight there was learning from
professionals with many years of experience and
interacting with people from all over the world.
“It was extremely valuable to learn about new ideas
and technology in the market and experience the
leading edge of innovation. Everything made an
impact on me and I’ve been so inspired by the
possibilities in the industry.”
She says that the level of personal growth was the
best reward. “The training experience pushes you
to a new level both personally and professionally,”
says Mchunu.
Since returning she has been looking at her business
with new eyes and sees a lot of opportunities in the
South African industry that are untapped.
The Academy turned out to
exceed all my expectations
– it was such a positive,
supportive environment.
“There is plenty of room for innovative ideas
in South Africa, but as it is a highly specialised
industry, one needs to have the knowledge of best
practice to make them a success.”
Her advice to other aspiring entrepreneurs is
to research ideas, build strong networks and
surround yourself with positive people and mentors
who believe in you as a person more than just a
business idea.
Siphokazi’s story...
Business course unlocks community spirit
SUCCESS SUMMARY
Siphokazi Mlungwana discovered her
passion for helping others and put it to
good use in her successful aftercare,
Isandla Sihlamba Esinye. She is helping
to teach and develop the young child­
ren in the township of Khayelitsha and
building her profile as an inspiring
community member.
A courageous young woman, Siphokazi
Mlungwana of Khayelitsha, has opened her
heart and home to children in her area –
proving that not all business-minded people
favour profits over people.
Mlungwana spent the early years of her
professional life working in various offices and
retail outlets and, after completing a course in
Office Administration, resigned herself to a
career within that field.
I often felt that my life was
mapped out in front of
me, for better or worse.
The Academy has opened
my mind and given me
a second chance in life.
I have been inspired by
Mr Ackerman to pursue
my passions and make
a difference in my
community.
The catalyst for the major life change that led to her
working with children came when her younger sister,
Thandi, saw an advert for the Raymond Ackerman
Academy in a local community paper. Together they
embarked on the programme in 2007.
“I often felt that my life was mapped out in front of
me, for better or worse. The Academy has opened
my mind and given me a second chance in life. I
have been inspired by Mr Ackerman to pursue my
passions and make a difference in my community,”
says Mlungwana.
Mlungwana started an aftercare for primary
school children in her area. Now, from 4pm
every afternoon, Mlungwana’s home becomes
the Isandla Sihlamba Esinye (one hand washes
another) Children’s Aftercare.
95
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE
“Mr Ackerman’s ‘four legs of the table’ metaphor
includes social responsibility, something which
I did not expect to learn on an entrepreneurial
course,” explains Mlungwana. “This aspect of the
programme unlocked the passion I have always
had for helping people, and I knew I had to stop
wanting to make a difference and actually do
something useful.”
Mlungwana knows that getting an education is
the first crucial step on the road to achieving your
goals and that many children from disadvantaged
areas learn this valuable lesson too late in life.
Technology is so important
these days and people
living in townships have
far too little exposure to
computers. I would love
to teach people basic
computer skills, how to
compile a CV and use
the internet. This kind of
knowledge can be hugely
empowering.
“I always had a vision to help children by providing
a safe place where they could get food and help
with their school work. Children living in townships
play on the streets every day and get exposed to
things like drugs, crime and sex at a very early
age. I want to help them focus on their education
and teach life skills that will inspire them to have
ambitions and lead happy lives,” says Mlungwana.
The aftercare has grown considerably since it was
started and today has about fifteen children in
its care.
Mlungwana explains that if it wasn’t for logistical
constraints, there would be many more.
“Unfortunately I can’t take on any more children
as my house is simply too small to accommodate
them. Children keep coming and asking if they can
96
join and it feels terrible to have to turn them away.
I hope that in the future I will be able to acquire a
bigger property that can be completely dedicated
to the project,” says Mlungwana. “I also want to
get sponsors who can help provide food as well as
stationery for the children.”
I always had a vision to
help children by providing a
safe place where they could
get food and help with their
school work.
The children at Isandla Sihlamba Esinye aftercare
are given Maths, English, life skills and creative
classes each evening of the week, at no cost to
their families.
Mlungwana has been using her own money to
provide the children with stationery but is currently
putting together a proposal in order to acquire
sponsorships in the future.
Mlungwana maintains that one of the best aspects
of the Academy is that the programme focuses on
personal development and not just business skills.
She does, however, have plans to put her acquired
business know-how to good use.
A love of computers and a passion for empowering
people to help themselves have combined to form
a dream of her one day opening up an internet
café in Khayelitsha.
“Technology is so important these days and people
living in townships have far too little exposure to
computers. I would love to teach people basic
computer skills, how to compile a CV and use the
internet. This kind of knowledge can be hugely
empowering,” says Mlungwana.
“I am inspired by people who help themselves
instead of waiting for hand-outs. People who
make a success out of their business or help their
community against the odds are the pillars of our
society and we need to encourage and nurture this
kind of ambition from a young age.”
 Chapter 6
Entrepreneurship Through Different Lenses
(GEM special focus projects 2002 – 2009)
6.1 Special focus
2009: Social
entrepreneurship
6.1.1 Introduction
The special topic that the 2009 GEM survey
focused on was social entrepreneurship.
The intention of the study was to explore the
prevalence and nature of entrepreneurship
with a social purpose. The effect of the recent
global recession and its impact on the global
recovery is likely to be felt for a considerable
time. The importance of social entre­­pre­
neurship as a way of addressing social needs
will, if anything, become more important
as social needs continue to increase while
government and philanthropic donations, as
well as other available resources, decrease.
Using business tools to become sustainable is
likely to be vital for the survival of many socially
responsible organisations.
Forty-nine of the 54 countries that participated
in the 2009 global GEM study were involved
in the special focus study. To facilitate the
collection of uniform data across all these
countries, a number of additional questions
were added to the standard GEM survey. These
questions were intended to explore both the
prevalence and scope of social entrepreneurial
activity across countries, as well as to enable the
researchers to develop some understanding of
the characteristics of social ventures and their
founders (Justo, R et al., 2010).
6.1.2 What is social
entrepreneurship?
Entrepreneurship has long been debated in
academia; however, social entrepreneurship is
a relatively new concept. Finding a generally
accepted definition is still the subject of
much of the research in this area. Early
definitions described social entrepreneurship
as “combining the passion of a social mission
with an image of business-like discipline,
innovation, and determination commonly
associated with, for instance, the high-tech
pioneers of Silicon Valley” (Dees, 2001). Social
entrepreneurs have also been described as
change agents that find innovative solutions to
social problems [Dees (2001), Barendsen and
Gardener (2004), Rego and Bhandary (2006),
Mair and Martí (2006)] and as individuals
who approach social problems with an
entrepreneurial spirit and business acumen
(Barendsen and Gardener, 2004).
Dees (2001) argues that it important to
differentiate between entrepreneurs and social
entrepreneurs. He suggests five characteristics
that differentiate social entrepreneurs from
business entrepreneurs, namely:
• Adopting a mission to create and sustain
social value.
• Recognising and relentlessly pursuing new
opportunities to serve that mission.
• Engaging in a process of continuous
innovation, adaptation and learning.
• Acting boldly without being limited by
resources in hand.
• Exhibiting heightened accountability to
the constituencies served and for the
outcomes created.
Viewing social entrepreneurship through the
lens of entrepreneurial studies acknowledges
that organisations with social missions can also
look for the most effective methods of serving
their vision – and that many of these methods
may be borrowed from what has traditionally
been regarded as an exclusive business arena.
Acknowledging the possibility that both profit
and socially-motivated businesses may employ
97
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE
similar methods in achieving their goals implies
a blurring of the boundaries between business
and social society.
In an attempt to clarify what is understood by
the term social entrepreneurship, Dees (2001)
reviewed what is known about entrepreneurship
in general and identified that the notion of
“opportunity” has come to be central to many
current definitions of entrepreneurship. Dees
quotes Howard Stevenson, an entrepreneurship
theorist at Harvard Business School, who added
an element of resourcefulness to the opportunity-
oriented definition: “the pursuit of opportunity
without regard to resources currently controlled”
(Dees, 2001). This definition is particularly
interesting when looking at social enterprises -
many of which lack resources – as it emphasises
the innovative use of limited resources. The
concept of pursuing a social need, without
being hampered by limited resources currently
controlled by the organisation, could be a clear
indicator of an entrepreneurial mindset being
applied to social issues. A number of researchers
[Dees (2001), Barendsen and Gardener, (2004),
Rego and Bhandary (2006), Mair and Martí
(2006)] have identified social entrepreneurs
as being innovative in their approach. This
innovation could be apparent in how they
structure their business/organisational model,
acquire funding, or access and use the limited
resources at their disposal.
For social entrepreneurs, the social mission or
vision is central to the organisation (Dees 2001).
Dees identified that having a social mission
central to the organisation did not preclude the
organisation from making a profit or serving the
needs of customers. However, these objectives
were secondary to meeting the social objectives
of the organisation. The central importance of
a defining social goal is emphasised by Shetty,
a social entrepreneur whose vision is that every
individual should have access to health care.
Shetty indicates that when hiring surgeons,
he screens candidates for passion as well as
ability and intelligence. “It is very important,” he
says, “that all my staff members realise that the
institution is not built just to earn money but to
serve society” (quoted by Rego and Bhandary,
2006). Mair and Martí (2006) also argue that
social entrepreneurship can take place on a for-
profit basis and that for-profit businesses are not
98
the exclusive domain of the business sector. They
argue that rather than using profit versus not-for-
profit as a way to differentiate between business
and social entrepreneurs, the “relative priority
given to social wealth creation versus economic
wealth creation” is a better indicator, with social
wealth creation being the primary objective in
social entrepreneurship. This differentiation does
not preclude the creation of economic value, in
the form of earned income, but emphasises that
this earned income is seen as being necessary
to “ensure the sustainability of the initiative and
financial self-sufficiency”. A key feature of social
entrepreneurship is how the profits generated by
the venture are distributed i.e. for the common
good rather than private wealth accumulation.
N. Frances, the director of Cool nrg, a for-profit
business aimed at promoting the reduction in
carbon emissions, argues that for-profit social
enterprises are often far more effective in
solving social issues. He quotes from personal
experience as both the Chief Executive Officer
of the Brotherhood of St Laurence, an anti-
poverty charity in Australia whose primary
purpose was to create employment for the poor
and disadvantaged, and as the director of Cool
nrg. “Two years after leaving the Brotherhood
and setting up a for-profit social enterprise,” he
notes, “my efforts had created more jobs than
in the five years of leading a charity” (Frances,
2008). He is of the opinion that the concept
of a social entrepreneur should not include
individuals that rely on philanthropic donations
or government grants, even if these individuals
are innovative in how they deliver a service or
manage their resources. Instead, he argues that
a true social entrepreneur is “someone who
locates the interface between a social goal and
building a consumer base for the service that
delivers that goal” (Frances, 2008).
Mair and Martí (2006) raise a number of
interesting questions relating to social entre­
preneurship. These include:
• How does social entrepreneurship differ in
developed and developing countries?
• Can geographical clusters with higher
levels of social entrepreneurial activity be
observed, e.g. India and Bangladesh, or
Brazil and Ecuador? If so, what explains the
emergence of such clusters?
 CHAPTER 6: Entrepreneurship Through Different Lenses
• What institutional factors explain the
emergence of social entrepreneurship?
• What is the link between social entre­
preneurship and sustainable deve­lopment,
and how can social entrepreneurship
contribute to sustainable development?
Some of these questions will be addressed by
the special focus on social entrepreneurship in
GEM, and an attempt to provide pre­liminary
answers will be made.
6.1.3 GEM social entre­
preneurship methodology
GEM uses a broad definition of social
entrepreneurship, namely individuals or orga­
nisations engaged in entrepreneurial activities
with a social goal (2009 GEM Global Report).
The GEM social entrepreneurship methodology
includes every individual engaged in behaviour
related to the creation of social enterprises, no
matter how modest (Justo et al., 2010). This
behaviour is intially identified by the response to
the following GEM question:
“Are you, alone or with others, currently trying
to start or currently owning and managing
any kind of activity, organisation or initiative
that has a particular social, environmental
or community objective? This might include
providing services or training to socially
deprived or disabled persons, using profits
for socially oriented purposes, organising self-
help groups for community action, etc.”
According to the GEM social entrepreneurial
activity work group, this question covers all
social, environmental or community work, in
entities that could be classified as incorporated or
not incorporated, and that consider them­selves
either for-profit or not-for-profit. The broadness
of the scope of the question is to enable GEM
to identify all individuals that start organisations
that address social issues (Justo et al., 2010)
6.1.4 A global comparison of
social entrepreneurial activity
(SEA)
Figure 6.1 depicts the prevalence of early-stage
social entrepreneurship activity (SEA). This
represents the percentage of all respondents
who are involved in social entrepreneurial
activity in early-stage organisations i.e. in the
start-up phase (less than three months old) or
young firm phase (three to 42 months). The SEA
can be seen as the social equivalent of TEA. The
average SEA rate across all 49 GEM countries
is 1.8%, but it ranges from 0.1% to 4.3% (2009
GEM Global Report).
Figure 6.1 shows that South Africa’s SEA rate
of 1.8% is approximately midway relative to
all the efficiency-driven countries. The SEA of
efficiency-driven countries ranges from 0.2%
(Malaysia) to 4.1% (Argentina). The 2009 GEM
Global Report indicates that the range of SEA
across factor-, efficiency- and innovation-driven
countries is similar, although the average SEA
rate does increases slightly with economic
development (an average of 1.6% for factor-
driven, 1.8% for efficiency-driven and 1.9% for
innovation-driven countries). The report argues
that individuals in wealthier economies, having
satisfied their basic needs, may have greater
resources (material, skills and time) to channel
into addressing social needs. While the report
acknowledges that developing countries are
likely to face a greater quantity and variety of
social and environmental needs, the opportunity
cost to the individual may be greater than
for individuals in developed countries, and
this could decrease the prevalence of social
entrepreneurial activity.
The general finding is that the average SEA
increases slightly with economic development.
However, Table 6.1 shows that South Africa
has a lower SEA rate (1.8%) than Uganda
(2.2%), the only other sub-Saharan country
participating in GEM 2009. Uganda is a factor-
99
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE

driven economy and the poorest country in the
GEM 2009 sample. Not only is the total early-
stage SEA lower in South Africa than in Uganda,
but the majority of social entrepreneurship (SE)
organisations in Uganda are new organisations
in contrast to South Africa where the majority
of SE organisations are nascent organisations.
The majority of SE organisations in Uganda are
more established and are therefore likely to be
more sustainable.
The rate of male social entrepreneurial activity for
both South Africa (1.3%) and Uganda (1.1%) is
similar. Uganda’s female social entrepreneurial
activity rate, which is similar to its male social
entrepreneurial activity rate, is double that
of South African females. This pattern, of
almost equal rates of male and female social
entrepreneurial activity, is also found in most of
the Latin American efficiency-driven countries
(other than Brazil and Panama), with Argentina
having a marginally higher female SEA rate.

6.0%

5.0%

4.0%

3.0%

2.0%

1.0%

0.0%
Jordan
Bosnia and Herzogovina
Serbia
Panama
Iran
Romania
South Africa
Latvia
Dominican Republic
Chile
Uruguay
Croatia
China
Hungary
Colombia
Peru
Argentina
Hong Kong
Spain
Germany
Republic of Korea
Norway
Netherlands
Italy
Belgium
Israel
Greece
Slovenia
United Kingdom
France
Finland
Switzerland
Iceland
United States
Guatemala
Saudi Arabia
Morocco
West Bank & Gaza
Lebanon
Syria
Algeria
Uganda
Jamaica
Venezuela
Malaysia
Brazil
Ecuador
Russia

United Arab Emirates

Factor-Driven Economies Efficiency-Driven Economies Innovation-Driven Economies

Figure 6.1: Prevalence of early-stage social entrepreneurship activity (SEA) by country

Source: GEM Adult Population Survey, 2009

100
 CHAPTER 6: Entrepreneurship Through Different Lenses

Table 6.1: Social entrepreneurial activity by firm phase and gender, GEM 2009
(Source: GEM, Adult Population Survey, 2009)
Social
Social entre­ Social entre­
Nascent entre­
preneurial preneurial
social entre­­ preneurial Male Female
activity activity in
preneurial activity in SEA SEA
in new early-stage
activity established
organisation organisation
organisation
Factor-driven economies
Algeria 0.8% 0.3% 1.1% 0.0% 0.5% 0.5%
Guatemala 0.1% 0.0% 0.1% 0.0% 0.0% 0.0%
Jamaica 1.2% 2.3% 3.4% 0.6% 1.8% 1.6%
Lebanon 0.4% 0.4% 0.8% 0.4% 0.3% 0.5%
Morocco 0.3% 0.3% 0.4% 0.3% 0.4% 0.0%
Saudi Arabia 0.1% 0.1% 0.2% 0.0% 0.2% 0.0%
Syria 0.7% 0.2% 0.9% 0.0% 0.6% 0.3%
Uganda 0.7% 1.6% 2.2% 0.8% 1.2% 1.1%
Venezuela 3.4% 0.1% 3.6% 0.0% 2.1% 1.5%
West Bank and 0.2% 0.2% 0.4% 0.1% 0.3% 0.0%
Gaza Strip
Average
(unweighted) 0.8% 0.5% 1.3% 0.2% 0.7% 0.6%
Efficiency-driven economies 
Argentina 2.2% 1.9% 4.1% 3.0% 2.0% 2.1%
Bosnia and 0.6% 0.2% 0.8% 0.0% 0.7% 0.1%
Herzegovina
Brazil 0.2% 0.2% 0.4% 0.0% 0.4% 0.0%
Chile 1.7% 0.8% 2.4% 0.2% 1.4% 1.1%
China 1.4% 1.2% 2.6% 0.3% 1.3% 1.3%
Colombia 2.7% 0.7% 3.4% 0.1% 2.1% 1.3%
Croatia 1.3% 1.3% 2.6% 1.1% 1.7% 0.9%
Dominican 0.8% 1.4% 2.2% 0.8% 1.6% 0.5%
Republic
Ecuador 0.4% 0.1% 0.5% 0.0% 0.2% 0.2%
Hungary 2.0% 0.6% 2.7% 0.1% 1.5% 1.2%
Iran 1.0% 0.3% 1.4% 0.2% 1.0% 0.4%
Jordan 0.3% 0.3% 0.6% 0.1% 0.4% 0.2%
Latvia 1.4% 0.5% 1.9% 0.7% 0.9% 1.0%
Malaysia 0.2% 0.0% 0.2% 0.0% 0.1% 0.1%
Panama 0.9% 0.3% 1.2% 0.1% 0.8% 0.3%
Peru 3.4% 0.1% 3.5% 0.1% 1.9% 1.6%
Romania 1.3% 0.3% 1.6% 0.1% 0.9% 0.6%
Russia 0.4% 0.2% 0.6% 0.1% 0.2% 0.4%
Serbia 0.4% 0.7% 1.1% 0.5% 0.7% 0.4%
South Africa 1.2% 0.6% 1.8% 0.1% 1.3% 0.5%
Uruguay 1.9% 0.7% 2.6% 0.3% 1.8% 0.8%
Average
(unweighted) 1.2% 0.6% 1.8% 0.4% 1.1% 0.7%

101
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE

Social
Social entre­ Social entre­
Nascent entre­
preneurial preneurial
social entre­­ preneurial Male Female
activity activity in
preneurial activity in SEA SEA
in new early-stage
activity established
organisation organisation
organisation
Innovation-driven economies
Belgium 1.0% 0.7% 1.7% 0.9% 1.2% 0.5%
Finland 1.2% 1.4% 2.6% 1.9% 1.4% 1.2%
France 1.6% 0.6% 2.2% 0.4% 1.5% 0.7%
Germany 0.5% 0.2% 0.7% 0.4% 0.5% 0.2%
Greece 1.3% 0.6% 1.9% 0.8% 1.3% 0.6%
Hong Kong 0.2% 0.2% 0.5% 0.3% 0.3% 0.2%
Iceland 2.3% 1.6% 3.9% 1.5% 1.8% 2.1%
Israel 0.9% 0.9% 1.8% 1.4% 1.0% 0.9%
Italy 0.8% 0.4% 1.2% 0.5% 0.7% 0.5%
Republic of Korea 0.4% 0.4% 0.7% 0.1% 0.6% 0.2%
Netherlands 0.5% 0.4% 0.9% 0.4% 0.6% 0.3%
Norway 0.6% 0.3% 0.9% 0.0% 0.7% 0.2%
Slovenia 1.3% 0.7% 2.0% 1.1% 1.3% 0.7%
Spain 0.4% 0.2% 0.5% 0.2% 0.3% 0.2%
Switzerland 2.4% 0.3% 2.7% 0.1% 1.8% 0.9%
United Kingdom 0.8% 1.3% 2.1% 1.8% 1.3% 0.8%
United Arab 2.4% 2.0% 4.3% 0.4% 3.9% 0.4%
Emirates
United States 2.9% 1.1% 3.9% 0.5% 2.1% 1.9%
Average
(unweighted) 1.2% 0.7% 1.9% 0.7% 1.2% 0.7%

6.1.5 Who are our social the effect that education has on individuals’
entrepreneurs? belief that they possess the skills needed to
start a business, and has shown that a lack of
6.1.5.1 Gender belief is particularly noticeable amongst women
The 2009 Global GEM Report indicates that in South Africa. Education as a limiting factor
social enterprises are more likely to be started seems to be affecting women’s participation
by men than by women, but that in the majority not only in business in the traditional sense, but
of countries the gender gap is not as marked as also in their ability to become active in social
for TEA. However, in South Africa, the TEA male enterprises. Table 6.2 shows that the male to
to female ratio is 1.5:1, while the male to female female ratio is worse in new organisations than
ratio for social entrepreneurial activity is 2.6:1. for nascent organisations.
This finding is of concern as not only are women
in South Africa under-represented in purely Table 6.2: Male to female SEA ratios by
entrepreneurial concerns, but they are even more firm type
under-represented in socially-entrepreneurial
firms. While South Africa’s TEA male to female   Male Female
ratio is average in comparison with all the Nascent 1.7% 0.7% 2.36:1
GEM countries, the SEA male to female ratio is social
significantly worse. The SEA ratio for factor-driven organisations
countries is 1.3:1, for efficiency-driven countries
it is 1.6:1 and for innovation-driven countries New social 0.9% 0.3% 3.12:1
organisations
1.7:1. Chapter 3 has reviewed in some detail

102
 CHAPTER 6: Entrepreneurship Through Different Lenses
6.1.5.2 Education
The 2009 GEM Global Report showed that,
as with TEA, there is a positive link between
individuals’ level of education and the propensity
of being engaged in SEA. The majority of South
Africa’s early-stage social entrepreneurs have
completed high school (47%), with a further 8%
having some post-matric qualification and an
additional 4% having a tertiary qualification.
Education levels are therefore not only important
in increasing the number of entrepreneurs in a
country, but also of importance in generating
sufficient social entrepreneurs. What is of
interest, though, is that the majority of the social
entrepreneurs had completed matric but had
not invested in any post-matric qualifications.
6.1.5.3 Age
The 2009 GEM Global Report indicated that
individuals aged 18-24 years have a relatively
higher chance of being involved in SEA in most
countries. This is in contrast to TEA rates where
the prevalence of early-stage entrepreneurial
activity (TEA) tends to be relatively low in the
18-24 years cohort. The TEA rates tend, on
average, to be highest in the 35-44 year bracket
and second highest in the 25-34 year bracket.
In South Africa, however, individuals aged 25-
44 years are relatively more likely to be involved
in SEA. It is of concern that although the global
trend is for individuals aged 18-24 years to have
a relatively higher chance of being involved in
SEA, this is not the case with the youth of South
Africa. With the majority of school leavers in
South Africa not pursuing post-matric or tertiary
studies and therefore forming part of the
potential labour force, it is of interest that the
rate of SEA in this age group is lower than most
GEM countries.
With South Africa only recently having become
a democracy, the country being fairly highly
politicised, there being a lack of formal
job opportunities and the country showing
extremely high income inequalities, there is an
expectation that young people would be more
active in social activities. The data, however,
shows that this is not the case, with only the
55-64 year bracket having a lower SEA than
the 18-24 year bracket. Research into whether
young people in South Africa have a lower social
awareness, or whether poor education or a lack
of belief in their own skills is limiting the number
of young people active in social organisations,
could yield interesting insights. According to the
2008 GEM Report, unemployment has affected
primarily women and the youth. The report
further indicates that the disproportionately high
unemployment figures for the youth highlight
the importance of finding alternative ways of
increasing youth participation in the economy.
Involvement in social organisations could be a
means of providing areas in which the youth
could improve their own skill-set and contribute
to the economy.
6.1.5.4 Population group
According to the 2008 GEM Report, there
is a strong association between population
group and entrepreneurial activity. Whites
and Indians are more likely to start a business
than are coloureds or black Africans. Relative
to population size, whites are almost twice
as likely, compared to black Africans, to be
involved in early-stage entrepreneurial activity.
With respect to social entrepreneurial activity,
however, there is not a strong association
between population group and SEA. Social
entrepreneurial activity is relatively evenly
spread with respect to population groupings.
The rate for black African and white social
entrepreneurial activity is 1.9%, while indian
and coloured SEA rates are 1.6% and 1.4%
respectively. It is of interest to note that while the
rate of social entrepreneurial activity is low for
all population groups, there is greater equality
in these activity rates. The greater equality is,
however, largely due to a relatively lower rate of
Indian and white social entrepreneurial activity
(in comparison to TEA) rather than an increase
in the rate of black African activity in social
entrepreneurial activities.
6.1.5.5 Urban/rural SEA
The 2009 Global GEM Report acknowledges
that although developing countries are likely to
face a greater quantity and variety of social and
environmental needs, the opportunity cost to the
individual in embarking on social activities may
be greater and that this could explain the lower
rates of social entrepreneurial activity. It could
be argued that a similar set of circumstances
could apply to the rural areas of South Africa.
While it is likely that rural areas face a greater
quantity and variety of social and environmental
needs, the opportunity cost to individuals living
103
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE

in rural area who embark on social activities
is likely, on average, to be greater than for
individuals living in metro areas (cities) and other
urban areas (towns). This could explain the lower
prevalence of social entrepreneurial activity in
rural areas. The SEA in metro areas is 1.8%, in
other urban areas 2.6% and in rural areas 1.5%.
Communities in rural areas are generally more
constrained in their ability to start and run a
business. These constraints could include a lack of
infrastructure, distance from markets, small (and
often extremely poor) local communities, lower
education levels and lower skills with respect to
ICT. These constraints would apply not only to
traditional businesses but would also need to
be addressed by socially-aware businesses. This
could also, in part, explain the lower rural rates.
6.1.6 National expert survey
findings
In order to assess the prevailing attitude to civil
society organisations (CSOs) within participating
countries, the national expert survey (NES)
included nine additional statements relating to
society’s perceptions of and attitude towards
social and environ­mental projects and issues. The
experts responded to each statement according
to a 5-point Likert scale where a score of
1 = completely false, 2 = somewhat false, 3
= neither true nor false, 4 = somewhat true,
and 5 = completely true. The national experts
consisted of 16 female respondents and 20 male
respondents, with knowledge relating to the nine
entrepreneurial framework conditions. Table
6.3 provides the statements that were put to the
national experts
Table 6.3 shows that the statement that “society
expects companies to give back part of their
profits to important social and environmental
concerns” is the only statement considered
to be somewhat true by the experts. Male
respondents (4.10) felt more strongly than did
female respondents (3.88) that this statement
was somewhat true. South Africa was one of only
five countries that had an average ranking over 4
for this statement. The relatively strong indication
that South African society expects companies to
contribute to social and environmental concerns
could be seen as a reason why the rate of social
entrepreneurship is low in South Africa. If all
companies are expected to give back part of
their profits, i.e. to act in a socially responsible
manner, there would be less of a need for social
entrepreneurship ventures.
There was not a strong indication that our
national experts felt that CSOs willingly partner

Table 6.3: Statements responded to by the national experts

Statement Average score

Society expects companies to give some of their profits back to the community
S1 through contributing to important social or environmental projects
4.00

CSOs tend to be willing to partner with companies on social,

S2 environmental or community projects
3.83

Social, environmental or community problems are generally solved

S3 more effectively by entrepreneurs than by the government
3.64

Social, environmental or community problems can be solved

S4 more effectively by entrepreneurs than by CSOs
3.35

The government is able to bring potential entrepreneurs, businesses and CSOs

S5 together around specific social, environmental or community projects
2.54

Businesses should invest more in socially responsible activities if they want to

S6 regain public confidence, due to the global economic crisis
3.67

Social responsibility is a significant source of competitive advantage

S7 for new and growing businesses
3.47

If a business complies with the law, it is already regarded as a very socially

S8 and/or environmentally-friendly business
2.89

Companies that advertise their environmental and social projects

S9 meet with more scepticism than approval
2.69

104
 CHAPTER 6: Entrepreneurship Through Different Lenses
with business to achieve social interests. Again,
male respondents were more in agreement
that the statement could be somewhat true
(3.90). Female respondents (3.88) felt more
strongly than did male respondents that
social, environmental or community problems
generally are solved more effectively by
entrepreneurs than by the government. It is
therefore surprising that South Africa has a
lower rate of female social entrepreneurs than
most of the other efficiency-driven countries.
There was not a strong indication that
the national experts (2.54) believed that
the government is able to bring potential
entrepreneurs, businesses and CSOs together
around specific social, environmental or
community projects. The national experts also
indicated that by merely complying with the
law, businesses are unlikely to be regarded as
very socially and/or environmentally friendly
(2.89). National experts in Latin America (3.53
average) and Uganda (3.37) were slightly
more likely to regard a business complying with
the law as a socially and/or environmentally
friendly business. Panama (3.81), Columbia
(3.76) and Chile (3.63) were most likely, of the
Latin American countries, to equate abiding
with the law with being a socially and/or
environmentally friendly business.
The response by national experts in South
Africa for statement three – namely that
“social, environmental or community problems
are generally solved more effectively by
entrepreneurs than by the government” – was
the fourth most critical in its assessment of the
effectiveness of government in solving social
issues. Experts from Guatemala, Venezuela
and the USA were the only countries (out
of the 49 that participated in the social
entrepreneurship special focus) that disagreed
more strongly with the statement. This is of
concern as the current government has used
its focus on poverty relief and solving social
issues as a key election platform. There seems
to be a lack of confidence in the government
to be effective in these areas.
The national experts in South Africa also feel
that entrepreneurs are more effective in solving
social, environmental or community problems
than are CSOs. South Africa ranked behind only
Guatemala and the USA in their assessment of
the lack of effectiveness of CSOs. South Africa
has a plethora of non-governmental, foreign-
aid and government-sponsored organisations
that are active, particularly in the social and
community arenas. The relatively negative
view of the experts regarding both the
government and CSOs’ ability to solve social
issues echoes the director of ‘Cool nrg’, who
commented that “two years after leaving the
Brotherhood and setting up a for-profit social
enterprise, my efforts had created more jobs
than in five years leading a charity” (Frances,
2008). While capitalism has been vilified in
a number of quarters in South Africa, it may
be timely to question whether certain business
principles, namely the effective and efficient
use of limited resources, should not be
employed to best serve the myriad of social,
environmental and community issues facing
South Africa at present. South Africa is facing
a growing population and a diminishing tax-
base. It is vital that the resources avail­­able
are used in ways that best benefit the tar­g et­e d
constituents.
The response to statements three and four also
raises questions regarding the low SEA rate in
South Africa. The academic understanding
of social entrepreneurship leans towards
individuals that are innovative and employ
business methods to efficiently and effectively
employ the resources under their control
for social good. The lack of confidence in
both government and CSOs to solve social,
environmental and community issues, and the
acknowledgement that entrepreneurs may be
better suited to address these issues, would
seem to indicate that social entrepreneurship
in the academic sense – namely businesses
that operate for the social good but could
employ business principles and could operate
as for-profit organisations – should be more
prevalent. As this is not the case, questions
need to be asked regarding whether the
rate of SEA is in fact as low as is reported or
whether there is still a lack of understanding
of the term social entrepreneurship, and
whether organisations that are working
towards social good are under-represented or
whether organisations that are for-profit are
automatically excluding themselves from the
area of social entrepreneurship.
105
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE
6.1.7 Conclusion
While South Africa’s SEA rate of 1.8% is
approximately midway relative to all efficiency-
driven countries, the male to female ratio for
social entrepreneurial activity in South Africa
is 2.6:1. This contrasts with both Uganda
and most of the Latin American efficiency-
driven countries, where the female social
entrepreneurial activity rate is similar to the
male social entrepreneurial activity rate. South
Africa’s social entrepreneurs also tend to be
older than the global average. While in most
countries individuals aged 18-24 years have
a relatively higher chance of being involved
in SEA, in South Africa it is individuals aged
25-44 years that are relatively more likely to
be involved in SEA. Research has shown that
women and young people in South Africa
are more affected by unemployment. It is
therefore of concern that this discrepancy
is also notable in socially entrepreneurial
organisations and it is imperative that future
research develops an understanding of why
young people and women are less involved
in these organisations than their peers in
other African and Latin American countries.
6.2 Special focus 2008:
ICT usage in lower-
end SMMEs in South
Africa
6.2.1 Introduction
In the 21st century, information communication
technology is seen as an essential tool for
businesses, helping the businesses to remain
competitive in domestic as well as inter­
national markets. The Global Compe­titiveness
Report 2007 – 2008 (Dutta and Mia, 2007)
regards connectivity as a key component of
public infrastructure, and high bandwidth is
seen as becoming as important a public utility
as drinking water (Dutta and Mia, 2007).
The report also indicates the importance of
narrowing not only the digital divide between
developed and developing nations, but also the
106
digital divide between urban and rural areas
within countries. According to Weiner and
Rumiany (2007), the implementation of ICT in
the developing world is often inhibited because
the infrastructure, human capital development
and financial resources that are necessary to
implement ICT effectively are either absent or
of a poor quality. They argue that ICT policies
adopted in developing countries have the
ability to increase (rather than decrease) the
digital divide within countries, and in so doing
make it even more difficult for businesses
in rural areas to compete. They justify this
point by arguing that when new technology
is introduced into developing countries, this
technology is made available in areas that have
the required infrastructure and market. New
technology is therefore introduced in urban
hubs, which become more competitive. With
the rapid advances occurring in technology
there is a growing fear that rural areas, which
are already hampered by large distances
from markets and plagued with poorer quality
infrastructure, will be further disadvantaged by
their lack of connectivity.
The digital divide refers to the inequalities in
access to ICT (Kelly and Biggs, 2007). The
literature identifies multiple divides, namely
between developed/developing countries,
within countries (urban/rural), linked to firm
size (micro/small/medium/large), and between
men/women and youth/the elderly. Kelly and
Biggs (2007), in agreement with the Economic
Intelligence Unit, argue that as the world
becomes more dependent on ICT, the digital
divide may come to be measured more in terms
of the quality of access rather than simply the
quantity of access to ICT.
6.2.2 ICT in South Africa
According to The Global Competitiveness
Report 2008 – 2009, the uptake of ICT on
an absolute basis seems fairly impressive,
particularly mobile phones where the number
of phones have quadrupled in South Africa
between 2002 and 2006 (Blanke 2007).
Given the slow pace of delivery of fixed lines,
mobile phones have become the telephony
of choice in South Africa. Mobile phone
coverage, for voice usage and short message
services, is extremely widespread and the
 CHAPTER 6: Entrepreneurship Through Different Lenses
explosion of mobile phone telephony has
considerably reduced the lack of connectivity
in rural/semi-rural and semi-urban areas.
Despite the increased use of mobile telephony,
however, South Africa still lags behind the
rest of the world in the uptake of the internet
and the use of personal computers. Although
South Africa compares well with other African
nations in terms of infrastructure provision
and ICT access, and urban populations have
experienced a rapid increase in the use of the
Internet, South Africa still lags behind many
other developing countries.
6.2.3 Research and methodology
The study focused on lower-end SMMEs that
used government-funded business support
services. The sample was drawn from client
lists from all 9 provinces, provided by the Small
Enterprise Development Agency (SEDA). The
data was collected by means of face-to-face
structured interviews, employing an interviewer.
6.2.4 Main findings
At the lower-end spectrum of SMMEs, ICT usage
is dominated by cellphone usage. However,
given the lack of proficiency with respect to
smart phone usage, it is likely that cellphones
are still being used predominantly for SMS and
voice functions. Fax machines are still a more
popular option for communication than email
correspondence. With just under 40% of the
businesses surveyed still operating without a
computer, the potential for an increasing digital
divide between ICT-enabled and traditional
businesses is extremely likely. This could further
disadvantage traditional businesses which are
seen to be largely rural based, have lower
monthly incomes and are owned/managed by
business owners with lower education levels.
Education levels have a significant impact both
on the likelihood that a business will have and
use a computer in the business as well as the
likelihood that the business owner will use
the Internet. Educational levels also influence
the variety of ICT devices that are used in
the business and whether or not the business
has Internet access. Internet access is still
significantly higher in urban areas, which will
lead to an increase in the digital divide within
South Africa. Internet access in rural areas is
used predominantly for research purposes and
lags behind urban businesses where it is being
used for more sophisticated business activities
such as banking.
The majority of lower-end SMMEs that have and
use a computer have relatively unsophisticated
software in their business. Microsoft Word
and Excel are the most popular software
packages used by businesses. Microsoft Word
was used predominantly for correspondence/
communication; capturing and storing business
information; and generating invoices, orders,
price lists and quotes. Microsoft Excel was
used predominantly for employee records,
attendance and salaries; casual registers,
timesheets, costing and financial calculations;
and keeping a record of cash made, payments/
cash flow and daily sales. A small minority of the
businesses indicated that they used customer
management or human resource software.
However, when questioned about what specific
package they used, it transpired that 31% and
80% used Microsoft Word or Microsoft Excel
as their customer management software or
human resource software respectively. Payroll
software seems to be the area in which the
greatest variety of software packages is
used, with 39.4% using Microsoft Excel and
a further 36% using Pastel Payroll. Although
these businesses are using ICT to manage
their customers and employees, the ability to
disseminate information as well as to extract
maximum benefit from their customer and
employee information is limited. There seems to
be a need for integrated computer programmes
that are tailored to the small business market,
affordable and easily accessible.
107
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE

6.2.5 Conclusions and recommendations

Conclusions
• A male bias exists in the use
of ICT devices. Other than
cellphones, male business
owners are more likely to use a
greater variety of ICT devices
and to consider themselves
more skilled at using the
various devices than are
female business owners.
• Younger business owners are • Adult basic education needs to ensure that computer literacy is seen
more likely to use ICT in their
businesses.
• The cellphone is the most
popular ICT device regardless
of age, gender, race or urban/ • Courses or information road-shows which focus on how to use more
rural split.
• The proficiency of smart
phone usage is, however, still
extremely low with the large
majority of the businesses
indicating that they had never
used smart phones.
• Educational levels have an
impact on the likelihood that
a business will have and use a
computer in the business, the
likelihood that the business
owner will use the Internet, and • An improvement in the quality of schooling is also critical to ensure
the variety of ICT devices that
are used in the business.
• Rural businesses make
significantly less use of a
computer or the Internet in
their businesses. They also are
far less positive with respect
to their belief in their own
business and ICT-related skills. • Communities are often initially suspicious of ICT usage within
Recommendations
• ICT in the past has been traditionally male-orientated. It is important
that women are encouraged to become more skilled in this respect.
ICT, and particularly the ability to access the Internet, increases
flexibility which allows women to overcome traditional constraints
associated with travelling and balancing domestic and business
responsibilities.
• Girls need to be encouraged to pursue scientific and technology
courses - at school and in tertiary studies. Early introduction to ICT
will alleviate the “fear of technology” which might inhibit their later
use of ICT.
as a key objective in the curricula.
• Courses or information road-shows aimed at increasing the
awareness of the benefits linked to a greater use of technology are
important, as the resistance to ICT usage may be due to ignorance
or fear of the unknown.
• Current cellphone technology allows for a number of sophisticated
operations that could be used effectively by small business owners.
sophisticated cell phone technology options (e.g. Internet access)
more effectively (as opposed to merely using cellphones for phone
calls and SMS) could benefit entrepreneurs.
• A number of studies have highlighted the low quality of the
educational standards in South Africa. In order for South Africa
to become more effective as an efficiency-driven country,
improvements in the quality of education at many schools in South
Africa needs to be addressed with some urgency.
that South Africa has sufficient employees and employers that are
able to be effective in the knowledge-based global economy.
• Business training institutions and service providers must employ
specialist IT people to advise businesses on the best ICT investments
for their business, as well as provide focused training to ensure the
effective use of technology.
• Training interventions need to offer business owners the support
that they actually require. This could be basic computer literacy,
English literacy, basic business skills or more advanced computer
literacy.
• ICT will not, in itself, solve many of the existing problems facing small
businesses – particularly in rural areas. These problems include
poverty, lack of markets, irregular electricity supply, transport and
other logistical issues. Policy makers need to recognise and make
efforts to address these issues, rather than see ICT provision as an
end in itself.
businesses. It is therefore important to educate the population as
a whole about technology use and benefits. Businesses do not exist
in a vacuum and need buy-in from customers if technology is to be
used successfully.

108
 CHAPTER 6: Entrepreneurship Through Different Lenses
Conclusions
• Rural businesses were less
confident in their perception of
their own general business as
well as specifically ICT skills.
• The telephone or paper-
based communication i.e. fax
machines are still significantly
more popular as a method of
communicating with suppliers
and customers.
• A large percentage of the
SMMEs do not use the
Internet for business purposes.
The digital divide between
businesses with access to more
sophisticated ICT, such as the
Internet, is likely to increase.
Businesses that do not access
the Internet are also excluded
from a comprehensive source
of business information that is
becoming more widespread –
particularly in urban areas.
• Microsoft Word and Excel are
still the software packages
of choice for small business
owners.
• A small minority of businesses
with computers use software
packages other than Microsoft
Word and Excel. One
exception to this is Pastel
payroll software.
• Over half of the respondents
found the management of
business activities relating to
sales/ marketing and finance/
accounting somewhat to very
challenging.
• More rural businesses
than urban businesses
indicated that they found the
management of business
activities relating to sales/
marketing and finance/
accounting somewhat to very
challenging.
Recommendations
• ICT training must be integrated into general business training
courses so that the way in which ICT complements business
practices can be demonstrated. If ICT solutions are to be effective,
they need to be integrated into the existing business processes and
form part of the longer-term strategy of the business.
• If the ICT requirements of the business are unable to fit into
existing business processes, the business processes may need to
be reviewed.
• Business owners would need to operate in a network of business
customers and suppliers that are all comfortable with electronic
communication before email becomes the communication norm.
• It is important to include technology in the school curricula as well
as adult education programmes to ensure that the wider population
becomes more familiar with technology.
• Community-based IT and business centres that provide access to
ICT must be easily accessible and must be staffed by sufficiently
qualified personnel.
• Large businesses e.g. cell phone providers should be encouraged
to invest in business centres. An example of this is the ICT access
centre launched in 2008 in Johannesburg. The initiative was funded
by Vodafone and is specifically targeted at small business owners. It
is of particular importance that these centres provide low-cost, easy
access to technology such as the Internet.
• Liberalisation of the telecommunications sector to allow for
increased competition is vital to assist in bringing down the cost of
telecommunication.
• Increased competition is also necessary to bring down the cost of
broadband connectivity, as the cost of broadband connectivity is
currently out of reach of many small businesses.
• These packages are simple, easy to use and affordable. It is
imperative that these packages are taught at secondary school level
and on computer training courses.
• ICT packages aimed specifically at small businesses need to
be promoted, as generic packages, often created with large
organisations in mind, are not suitable for small business needs.
• Tailor-made general business skills courses, particularly in
marketing and financial management, need to be provided for the
SMME sector. These courses need to address the real concerns
faced by small businesses and cannot be generic small versions of
corporate requirements.
• Poverty relief in rural areas is critical to ensure that there is a
sufficiently large market to encourage entrepreneurial behaviour.
• The lack of Internet usage to market and promote rural businesses
reduces their visibility. However, Internet usage by the general
population in rural areas would need to increase before this form of
marketing would be effective.
109
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE

Conclusions
• Businesses do not only see
the need for a computer
programme if they are finding
a particular business activity
challenging.
Recommendations
• Businesses that are already struggling to cope with the management
of a particular business activity are least likely to benefit from the
introduction of ICT into their business. Research has shown that the
adoption of ICT is only likely to have tangible benefits if the ICT is
effectively integrated into the business.
• The businesses that would most benefit from ICT interventions
are those that indicated that they were coping with or found the
management of certain business activities somewhat challenging.
These businesses have better business skills and should therefore
be able to effectively integrate ICT solutions into the business.

• There is a need for integrated
programmes for the small
business sector.
• ICT development has viewed the SMME sector as a smaller version
of corporate clients and much of the software offered to this sector
has been too complex, too expensive or has not understood the
needs of the SMME market.
• Software providers need to tailor-make programmes the SMME
market or, if they currently have programmes aimed at the SMME
market, they should review their marketing and pricing strategy.

6.3 Special focus 2007 LFS). Given that employment remains

2007: Youth and
entrepreneurship
6.3.1 Introduction
With the changing demographic profile
in many countries leading to a significant
increase in young people as a percentage of
the total population, research into youth and
entrepreneurship is becoming more important.
Schoof (2006) estimates that 88 million young
people worldwide are currently unemployed,
and refers to studies by the International Labour
Office (ILO) that indicate that the youth are
three and a half times more likely than adults
to be unemployed. By 2015, 660 million young
people will be looking for work (Schoof, 2006).
The formal sector in many countries is stagnant
and it is unlikely that this sector will be able to
offer traditional jobs to the increasing number
of young people looking for employment.
Unless alternative employment options are
encouraged, the number of unemployed youth
will continue to increase.
the strongest defence against poverty, and can
be seen as an effective way to allow the youth
to improve both their living standards and
future employment prospects, it is imperative
that the youth with the potential to become
employment creators are identified and that
these individuals are offered the correct form
of targeted support. While entrepreneurship
should not be considered to be the perfect
solution that can solve unemployment and all
other social problems, a number of positive
benefits resulting from entrepreneurial activity
are summarised by Chigunta et al. (2005).
These include the revitalisation of local
communities, increased competition and
employment.
6.3.2 Research methodology
The data was collected by means of face-to-face
structured interviews employing an interviewer.
The youth was defined as individuals between
the ages of 14-34 years. Respondents were
interviewed in the Western Cape (1 000
respondents), Gauteng (500 respondents) and
KwaZulu-Natal (500 respondents).

In South Africa unemployment has affected 6.3.3 Main findings

primarily the youth and women. In March
2007, 51% of respondents between the ages
of 15 and 24 years were unemployed and 29%
of respondents between the ages of 25 and
34 years were unemployed (StatsSA, March
Young men in South Africa are more interested
in starting a small business than are young
women. Young men are also more likely to start
a business because they identified a business

110
 CHAPTER 6: Entrepreneurship Through Different Lenses
opportunity (72%) than are young women
(63%). Given that GEM research has shown
that opportunity businesses are more likely to
provide the business owner with a sustainable
livelihood, it is not surprising that young men
have a more positive attitude with respect to
starting a business in South Africa. Young
women, in comparison to young men, seem
to lack confidence in their ability to identify a
good business opportunity as well as to come
up with a good business idea. Young women
are also more likely to not start a business due
to a fear that the business might fail.
Respondents with a tertiary education are
more likely to start opportunity-motivated
enterprises than to start a business because
they have no other choice for employment.
Necessity businesses, i.e. businesses that are
started as the owner has no other choice for
employment, generally only provide sufficient
income for survival and employ significantly
fewer people. Increasing the number of
opportunity-motivated businesses would
have a positive impact on both the financial
resources of the owners and the unemployment
rates in South Africa.
The 14-20-year-old age cohort, in both urban
and rural areas, was most likely to have used
both a computer and the Internet. This is a
positive trend as the Internet is an important
source of business information as well as a
source of potential business ideas. An increase
in the number of young people who are able
to use computers and the Internet means that
more young people will be able to access
information and potentially use this information
in assisting them in their decisions as to whether
or not they should start a business.
The majority of youth businesses operate in
the retail sector. This sector has low barriers
to entry with respect to start-up capital and
requires a low level of skills. Competition within
areas of the retail sector is extremely high and
businesses in these areas will generally have
low margins.
6.3.4 Conclusions and
recommendations
The findings showed that there is still a
strong tendency in the youth to prefer formal
employment as their career option of choice. The
legacy of apartheid policies, particularly for the
black African and coloured youth, is still apparent
in the lack of appropriate (business-related)
role models in both the family and the wider
community. This is important because personally
knowing an entrepreneur has been shown to
have a positive impact on the perception of
entrepreneurship as a valid career choice.
Young women are still under-represented
in opportunity businesses and show a lower
interest in starting a business. Young women
are a particularly vulnerable group as they have
traditionally been disempowered by virtue of both
their age as well as their gender. Young women in
rural areas are further limited by social attitudes,
high competition for available jobs – that often
go to young men, and a lack of mobility.
Factors identified by the youth as negatively
affecting their decision to start a business
focused on access to finance, crime, business
information and knowledge, and low turnover.
Crime is an additional cost to businesses and
given that a significant portion of the youth
believes that people that start their own business
have to work too hard for very little money,
crime is likely to be a significant inhibitor in
generating a positive attitude towards starting
a business enterprise. Government structures
and policies will need to focus on reducing the
crime levels, high unemployment and poverty if
an entrepreneurial culture is to be encouraged.
Although shortage of capital is identified as the
key factor inhibiting the youth from starting a
business, providing improved access to finance
without ensuring that young people have a
safe market in which to sell their products and
the skills to run their business, is unlikely to
dramatically increase the number of successful
entrepreneurial enterprises.
111
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE
Conclusions
Education provides the necessary knowledge and
skills to conduct business in the highly competitive
modern world. It enhances the employment prospects
as well as earning potential of the entrepreneurs.
Education also enables the entrepreneur to assess
the business environment astutely and identify
opportunities when they arise.
The type of education is important. In South Africa,
education in the numerical sciences, literacy and life
skills is inadequate.
Information technology (IT) has become integral in
modern business, and is important both in accessing
business information prior to starting a business
as well as allowing existing businesses to remain
competitive.
Young people need to be provided with appropriate
business education opportunities.
A tertiary education has been shown to be
advantageous in promoting entrepreneurial potential.
However, lack of financial resources with which to
pursue such studies is a common disincentive.
The youth lack business-orientated networks, and
many have no formal employment or family business
history. The existence of business support structures
is therefore crucial for providing business information
and skills development.
Crime is a problem which affects a whole nation,
but it exerts a marked negative influence on
potential entrepreneurs’ willingness to consider
entrepreneurship as a viable career path.
Business location is an important factor determining
business success. Entrepreneurs in rural areas are
subject to significantly more obstacles that those in
urban areas.
112
Recommendations
Government reviews the education curricula
at primary and secondary levels to ensure that
even if students do not complete their secondary
education, or proceed to tertiary education, they
are still equipped to function adequately in the
economic environment. Although there has been
an improvement in the quantity of education in
South Africa, with considerably more young people
completing secondary education, policy initiatives
need to prioritise the quality of education.
Training of teachers, in these areas, should be
prioritised to ensure effective teaching, especially in
previously disadvantaged schools.
IT skills need to be made a priority and taught in all
primary and secondary schools. Community-based IT
centres are needed in areas that are easily accessible
to the youth e.g. youth centres and libraries. Centres
also need adequately qualified people available to
assist the youth in using the technology effectively.
These could include an apprenticeship programme
which facilitates the student spending time in an
entrepreneurial business. In that way, potential
entrepreneurs would have access to role models,
their fear of failure would be diminished and their
interest would be stimulated.
Government and donor organisations/individuals
must review the provision of financial interventions
for tertiary study.
Although youth-orientated government initiatives
exist, many of the respondents were unaware of
these organisations or had never used them. The
initiatives should be better promoted – especially in
rural areas. Furthermore, their effectiveness needs to
be carefully monitored by an independent agency.
The media and communities should promote
entrepreneurial role models.
Government should take note of the discouraging
effect of crime prevalence on entrepreneurs and
take steps to address it.
Government and/or responsible bodies must
facilitate cooperative ventures, especially in rural
locations, whereby entrepreneurs could benefit from
economies of scale.
Government and/or responsible bodies must
facilitate the training of rural-based entrepreneurs
in the production of goods or services which will
not suffer the deleterious effects of distance from
markets.
 CHAPTER 6: Entrepreneurship Through Different Lenses
Conclusions
Women are often more involved with ensuring that
family units stay together. By encouraging greater
involvement in entrepreneurial enterprises by women
there is often an improvement in the living standards
of a larger number of people.
6.4 Special focus 2002:
South Africa’s
township
entrepreneurs
6.4.1 Introduction
It is estimated that two million people are
engaged in some form of self-employment
in South Africa. Providing effective business
support to all these entrepreneurs is beyond
South Africa’s current capabilities and financial
resources. If scarce resources are to be used
effectively, it is important to channel support to
entrepreneurs that are contributing to, or have
the potential to contribute to employment.
Effective targeting of support services would
be simplified if it were possible to categorise
entrepreneurs according to their capacity
to create jobs, and to identify the particular
training and support requirements of each
category of entrepreneur.
6.4.2 Entrepreneurship, growth,
employment and poverty
alleviation within the SMME
sector
In looking at the role of entrepreneurship and
small business development in job creation
and income potential in the townships, it is
important to develop an understanding of the
concept of entrepreneurship. With the current
focus on the SMME sector and its potential
for economic development and job creation,
the recognition of entrepreneurs as having an
important role in the economy has emerged
(Deakins 1999).
The current theory of entrepreneurship is
based largely on theories of entrepreneurship
by individuals such as Kirzner, Schumpeter
Recommendations
Barriers to women participating in entrepreneurial
activity must be addressed through government-
aided ventures such as the establishment of crèches.
The promotion of female role models by the media
is also vital.
and Knight. Deakins’ (1999) concern with
much of the entrepreneurial research is that
it has become too focused on describing
the entrepreneurial personality. This has
diverted attention from the key issue of the
learning process that entrepreneurs undergo.
Understanding the factors that influence the
entrepreneurs’ learning processes will allow
support services to offer management skills
training in a way that allows entrepreneurs to
learn from their experiences and from solving
problems (Deakins, 1999).
The environment in which the entrepreneur
works is as important as the development of
personal management skills. Deakins (1999)
cautions against offering too wide a support
service to SMMEs, as this encourages non-
entrepreneurs to go into business. He emphasises
that support should be focused on helping
existing small businesses and on reducing the
failure rate of start-up firms. Studies (Deakins,
1999) by Storey (North England) and Gallagher
and Miller (Scotland) indicate that only a small
percentage of businesses create the larger
percentage of jobs. In order for SMME policy to
have an impact on job creation, it is important
to identify businesses with greater potential to
create jobs and then offer targeted support to
these businesses.
6.4.3 Research methodology
This study involved 400 face-to-face interviews
as well as interviews with 40 service-providers
in four townships – Khayelitsha (Western
Cape), Soweto (Gauteng), Motherwell
(Eastern Cape) and Kwa Mashu (KwaZulu-
Natal). The study intended to profile township
businesses in order to understand the
growth and income potential of formal and
informal entrepreneurs, the ability of informal
businesses to convert into formal businesses
and obstacles to employment growth in high
potential township entrepreneurs.
113
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE
6.4.4 Main findings
A key objective of the township section of the
GEM 2002 report was to identify simple and
effective criteria for segmenting entrepreneurs.
This information could be used to provide
targeted support. In profiling township businesses
according to their capacity to create jobs, the
following categories were initially considered:
opportunity or necessity entrepreneur, level of
formal education, and registered or unregistered
businesses. The entrepreneur’s level of formal
education was excluded as it was felt that this
could disadvantage entrepreneurs who have the
potential to develop successful businesses but
have been denied access to formal education.
The usefulness of categorising businesses
as opportunity or necessity businesses was
felt to be limited as it relies solely on the
entrepreneur’s response to the question “Are
you involved in your present business to take
advantage of a business opportunity or because
you have no better choice for work”. Targeting
business support on the basis of this response
was too subjective, therefore a more objective
and identifiable criterion was sought. Analysis
of the data showed that the optimal distinction
was between registered and unregistered
businesses. This study refers to registered and
unregistered businesses as formal and informal
businesses respectively, since these terms are
more widely used and recognised.
The findings indicated that formal township
entrepreneurs have a greater propensity to create
jobs and generate revenue. These entrepreneurs
have higher levels of formal education, which is
positively linked to higher growth in sales and
business success. A larger number of formal
businesses keep business records, have access
to a private or business vehicle and operate from
premises other than home. Formal businesses
have greater access to technology in the form of
Internet and email access and fax machines. The
level of technological sophistication of formal
114
businesses in the townships is still extremely
low and this could be addressed through
the provision of community-based centres in
the townships.
The inability of township businesses to purchase
on credit, coupled with the need to offer credit
terms to debtors, impacts negatively on the
cash flow of the business and would hinder
growth. Large businesses could be offered tax
incentives if they offer reasonable credit terms
to smaller firms.
The small number of businesses using a cheque
account suggests that some formal businesses
could be using personal banking accounts for
business purposes. The finding that only 31%
keep formal banking records for the business
seems to confirm this. Record keeping is still
a constraint hampering formal businesses,
particularly those registered as a sole trader
or partnership as these businesses are not
required to produce financial statements. The
lack of financial statements in these businesses
means that an important source of business
information, namely the financial records, is
lacking.
Employee skills are significantly more of
a problem for formal businesses than for
informal businesses. Given that the majority of
informal businesses only offer employment to
the owner, this finding is understandable. It is
important that training for SMME employees
is made accessible to formal businesses. The
skills levy is an incentive to train employees
but disincentives such as transport difficulties
need to be addressed by offering training in
the townships.
A summary of the distinguishing characteristics
of formal and informal entrepreneurs is given in
Table 6.4 and policy implications with respect
to formal and informal businesses are provided
in Table 6.5.
 CHAPTER 6: Entrepreneurship Through Different Lenses

Table 6.4: Distinguishing characteristics of formal and informal entrepreneurs

Informal
Economic contribution
• Represent 90% of entrepreneurs in
disadvantaged urban communities.
• Majority of these businesses generate less
income than the level set for the ‘minimum
standard of living.’
• As a group, informal entrepreneurs create
44% of jobs in privately-owned firms in many
disadvantaged communities.
• 20% of informal entrepreneurs employ two or
more people. This group more closely fits the
profile of registered entrepreneurs.
Education
• Two-thirds of entrepreneurs do not have a
matric.
Resources
• Fewer than 10% have fixed business premises
away from home.
• 18% have their own or a business vehicle.
• One-third has access to landline telephone.
• 3% have a computer.
Needs
• One-third faces a problem with violent crime.
• One-third would like training on how to improve
their command of the English language.
• Two-thirds require additional money to run their
businesses.
• One-third would like training on how to register
their business.
Formal
• Only 12% of entrepreneurs in urban disadvan-
taged communities have registered businesses.
• More than four times as likely as informal
entrepreneurs to generate more than R5000
turnover per month.
• Create nine times as many jobs on average
as informal entrepreneurs (7.2 and 0.8 jobs
respectively).
• More than three times as likely as informal
entrepreneurs to create two or more jobs.
• As a group, registered entrepreneurs contri­bute
the majority of jobs in privately- owned firms in
disadvantaged communities.
• Two-thirds have a matric.
• One-third have completed tertiary education
More than five times as likely as informal
entrepreneurs to have completed some form
of tertiary education.
• More than five times as likely to have fixed
business premises away from home.
• More than three times as likely to have a private
or business vehicle.
• Twice as likely to have a cellphone.
• More than 11 times as likely to have a
computer.
• More likely than informal entrepreneurs to face
a problem with violent crime.
• Half as likely as informal entrepreneurs to want
training in how to speak English.
• 40% less likely than informal entrepreneurs to
require money for running their business.
• Majority want business training, but training
needs are more sophisticated than those of
informal entrepreneurs.
• As likely as informal entrepreneurs to want
training in record-keeping and financial
management.

115
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE

Table 6.5: Policy implications for formal and informal entrepreneurs

Informal Formal
Policy goals
• Encourage more adults, particularly the • Start to reduce disincentives to location of
unemployed, to pursue self-employment activity businesses in disadvantaged communities.
as a means of generating income. • Address the obvious cost disadvantages,
• Encourage successful informal entrepreneurs to e.g. those associated with crime, for formal
register their businesses. entrepreneurs in disadvantaged areas.
• Equip larger numbers of disadvantaged formal
sector entrepreneurs with skills necessary to
access affordable finance from the formal
financial institutions.
• Improve the access of formal entrepreneurs in
disadvantaged communities to key government
services, e.g. business support services.
Priorities
• Support the emergence of an effective micro- • Invest in the development of formal commercial
finance industry consisting of both for-profit and and industrial nodes within disadvantaged
not-for-profit organisations which can service communities.
informal entrepreneurs efficiently with loans and • Provide full paid-for security services in these
other finance in amounts below R10 000. nodes and monitor quality of service through
• Increase availability of practical, technical and service level agreements.
life skills training, e.g. avoiding debt, and make • Increase the extent and quality of policing in
more accessible to women. disadvantaged communities.
• For those informal entrepreneurs with two or • Ensure that top-quality, practical training in
more employees who wish to register their critical business skills such as record-keeping,
business, include in the cost of registration financial management and marketing is
practical training by accredited service available in disadvantaged areas.
providers on how to comply with SARS • Establish effective business information
requirements and how to register their business. offices in disadvantaged communities, run by
• Make incentives such as business training experienced and motivated business people,
contingent upon an entrepreneur registering and manage their performance.
his/her business.
Implementation steps
• Invest in training and formal accreditation of • Invite private sector partners to bid to co-
micro-finance entrepreneurs. Arrange for this invest with government in upgrading existing
training to be delivered by leading experts in business nodes or establishing new ones in
the field on a competitive basis. disadvantaged communities. Develop plans for
• Supply small amounts of seed-funding incremental development of such nodes where
on an incremental basis to micro-finance further development is contingent upon success
organisations, set clear milestones for in early stages.
performance, and make further funding • Recruit experienced entrepreneurs to run local
contingent upon achievement of these business information offices. Provide additional
milestones. training in what services to offer and how.
• Invest in childcare facilities at NGO training Arrange for this to be delivered by leading
organisations. experts on a competitive basis.
• Invest in skills development and formal
• Invest in training and formal accreditation of accreditation of local training organisations,
local service providers to provide training in to be delivered by leading experts on a
compliance with SARS requirements. competitive basis.

116
 CHAPTER 6: Entrepreneurship Through Different Lenses
6.4.5 Conclusions
Township entrepreneurs are not homogeneous
and there are vast differences in the profiles
of formal and informal entrepreneurs. Formal
businesses create significantly more jobs and
generate significantly more revenue than infor-
mal businesses. Formal entrepreneurs also dif-
fer from informal entrepreneurs in the following
ways: the level of formal education, the degree
to which lack of finance is a problem, access to
transport, the location of business premises and
access to technology.
Business support should be targeted at formal
businesses and poverty alleviation projects
should be aimed predominantly at informal
businesses. Business support offered to formal
entrepreneurs needs to be based on business
principles and provided by experienced entre-
preneurs. Providing high quality training and
mentoring services only for formal businesses
may serve as an incentive to these informal
businesses to register their businesses. How-
ever, most informal entrepreneurs are unlikely
to be persuaded to register and do not have
significant potential to generate growth. As
mentioned, poverty alleviation projects and
technical skills training are more likely to ben-
efit these entrepreneurs.
117
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE

118
Henri ’s story...
From Hard Streets to Soft Furnishings
SUCCESS SUMMARY
Henri Tshiamala’s story is one which
shows that one should never give up hope,
no matter the odds. Arriving from Congo
with little more than the shirt on his back,
Tshiamala has survived life’s knocks and
blows to create a thriving retail business
which celebrates his African heritage.
Just over ten years ago Henri Tshiamala took
flight from Kinshasa, Congo and found himself
an immigrant on the streets of Johannesburg.
Unable to speak any English, he peddled
reject clothing for food and a place to sleep
every night. Today, Tshiamala has an MBA
degree from the UCT Graduate School of
Business and has three retail outlets of his
African-influenced soft furnishings company
called Our Heritage.
It’s been an arduous road, but the remarkable
success story is a testament to Tshiamala’s
entrepreneurial spirit and determination against
all odds.
“I had to leave the University of Kinshasa in 1991
after the government started cracking down on
119
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE
students and when I got to South Africa I was
faced with the reality of having to survive on the
Johannesburg streets. I started trading in clothing
but there was resistance to foreigners from South
African informal traders. My stock was burned and
I was assaulted,” explains Tshiamala.
Life was not easier in Cape Town, but at least
he managed to scrape together a living from
informal trading at St Georges Mall. And it’s here
that Tshiamala got an unlikely foot in the door
of success.
“I traded outside Truworths on St Georges and,
after a few years, everyone knew me and saw
my enthusiasm. This included the manager of the
store. In 1995, I went to speak to him about a
job. He gave me the opportunity to train. After
that I secured a casual position at the store,”
says Tshiamala.
The more stable income meant he could pursue his
education once again, which he had had to leave so
abruptly in Kinshasa. He took short courses through
UNISA and also started part-time at the Cape
Peninsula University of Technology in electrical
engineering, his initial career path. In 1997 he
started his internship at Metrorail and worked as a
technician at Telumat, a commu­nications company.
But he says the attention he gave to developing
his informal sector trading was what proved to be
a catalyst for his success. The goods Tshiamala
was manufacturing and trading were a big hit
with the public. From the humble beginnings of a
single sewing machine at home, a unique brand
has evolved.
“We had a small machine and made our own ‘soft
furnishings’ goods such as pillows and bedspreads,
all with an African touch and using unique fabrics
from different African countries.
“In 1999, I was offered the opportunity of trading
formally at the new Century City shopping mall.
That was the start of the Our Heritage brand and
I soon dedicated all my energy to making the
venture a success,” he says.
Soon after, Our Heritage began trading at the
Waterfront Craft Market and Tshiamala moved the
120
manufacturing to a workshop in central Cape Town
and took on three people to train as machinists.
A short time later, Our Heritage expanded to two
and then three stalls at the Craft Market and he
could employ a few more people.
I think what I am finding
most important from the
MBA training is in the
areas of leadership and
entrepreneurship. I am
much better equipped to
think, react and plan for
tomorrow as well as to
help my staff excel.
It was at this point in 2003 that Tshiamala decided
it was time to get the formal business skills he
needed to better manage his growing business,
and he signed up for an MBA at the GSB in 2004.
“The MBA gave me the detailed knowledge of
doing business that I need to take my company to
greater heights,” he says.
Just two months after his graduation from the GSB,
Tshiamala’s business skills really came in handy
as the business took another step forward. He
opened his third retail outlet on the ground floor of
the prime V&A Waterfront's Alfred Mall.
“I think what I am finding most important from
the MBA training is in the areas of leadership and
entrepreneurship. I am much better equipped to
think, react and plan for tomorrow as well as
to help my staff excel. The MBA has made me
an all-round entrepreneur, able to take on any
corporate challenge.”
And he has big plans for the business over the next
few years, from more retail outlets in the Western
Cape to expanding to other regions. “This is just
the beginning of great things,” he says.
Ziggy’s story...
Passionate Entrepreneur Brings Joy to Those in
Medical Need

SUCCESS SUMMARY:

Nigerian born Ngozika “Ziggy” Owei’s savvy for customer service is what has propelled her
businesses to success. She had a unique business plan, the will and great determination,
and is reaping the rewards today.

Ngozika Owei, better known as Ziggy, has
come a long way since studying Business
Management in Nigeria – today she is the
founder and MD of Eti Health and Leisure,
a successful Cape Town-based medical
tourism company that is tailored to meeting
the medical needs of Nigerians travelling to
South Africa.
The company, which was launched in 2006,
organises two-day packages for patients who
require transport from Nigeria to Cape Town
for medical treatment. Services include finding a
suitable doctor or hospital, processing visas and
a tour of Cape Town while they are in recovery.
Most successful entrepreneurs are passionate
about what they do and that is most certainly the
case with Owei. After graduating top of her class
in Business Management at the University of Port
Harcourt in Nigeria in 1993, she went on to work
in retail banking.

121
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE
This hardworking mother of four has over eight
years of experience in this field in a variety of
positions including customer service, marketing
and as head of operations. After a four year
stint in Germany with her family, she relocated
to South Africa in 2005 where she obtained her
MBA at the UCT Graduate School of Business the
following year.
I derive a lot of joy from
running my business
because it involves
meeting new people.
I have always been in
customer service and
enjoy putting a smile on
people’s faces.
It was during a Business Planning course at
the UCT GSB that the idea of medical tourism
was brought up by a guest speaker. “I could
immediately see how I could restructure what she
was doing and tailor it to meet a very important
need in my country,” says Owei. “The passion to
help people with real medical problems was my
driving force.”
After the success of Eti Health and Leisure she
launched a second business in 2007, a B&B
called EHL House which not only created a place
for patients to recuperate but also offered an
authentic West African dining experience.
Initially this was solely aimed at their medical
clients, but since receiving four stars from the
Tourism Grading Council of SA, it has attracted
business and leisure travellers alike.
Although running these businesses is a joy for
hardworking Owei, it has not always been easy.
She has had to work hard to ensure that proper
marketing is in place to ensure a steady flow
of clientele.
Staffing is also a concern as there needs
to be an active and reliable presence in
Nigeria selling the package to prospective
122
patients. “This requires a lot of finance and
logistics which I am lacking at the moment,”
laments Owei.
Owei is first and foremost a proud Nigerian
and loves bringing her culture to Cape Town.
Her supportive husband, Dr Tonye Owei, works
alongside her as the CEO of Eti Health and
Leisure, giving the company a family feel. In fact,
Eti Health and Leisure is named after her mother-
in-law.
Their collaboration is what keeps this business
fundamentally Nigerian. However, the range
of authentic Nigerian food served at their EHL
guesthouse is something they are keen to share not
only with their patients but with all those interested
in broadening their cultural taste buds.
“I derive a lot of joy from running my business
because it involves meeting new people. I
have always been in customer service and
enjoy putting a smile on people’s faces,”
says Owei.
Owei identifies a number of key factors for
success as an entrepreneur. First and foremost
she says that a good business plan needs to
be in place as this will identify if the venture is
financially viable.
“It also helps to know if you are really filling a need
in the market,” she advises.
It also helps to know if
you are really filling a
need in the market.
A self-taught entrepreneur, Owei has followed her
heart, worked hard and at the end of the day is
making a difference in the lives of her patients. On
top of being MD, and devoted wife and mother,
she is also a motivational speaker and has been
featured in many local publications.
Owei is an inspiration to those who are prepared
to work hard for what they want. “Passion and love
of what you do and the determination to succeed
is the key. When the going gets tough, that’s what
gets you going.”
 Chapter 7
Access to Finance for South African Entrepreneurs
“Money is like a sixth sense without which you
cannot make complete use of the other five.”
(William Somerset Maugham,
“Of Human Bondage”)
Starting and growing a company is fraught
with difficulties – it is like trying to manoeuvre
through quicksand or over a minefield. There are
hidden traps, hazards, problems and unforeseen
obstacles. In order to be successful entrepreneurs
need to have the capacity to think quickly, be well
balanced, have specific skills and be extremely
tenacious. Raising funds for a new or existing
business, in particular, is a process riddled with
both challenges and opportunities. Having too
much money at the beginning can be both good
and bad: good, in that it takes the pressure off
cash shortages, but bad in that the entrepreneur
tends not to be frugal and sometimes forgets
that cash resources need to be used to optimum
advantage and not wasted on non-revenue
generating assets. When starting a business,
>90% of all start-ups
50%
annual
growth
20 - 50%
Lifestyle
Firm
<20%
Internal
Bootstrapping, friends,
financing
family and Angels
Figure 7.1: Relationship between finance sources and expected rates of return
raising cash is an important facet, but it should
not be all consuming and the business owners
need to continue focusing on the operational
side of business as well. However, in the early
stages of a business being profitable is less
important than having a positive cash flow, for
without the latter the business will be unable
to survive.
Studies done by Bruno and Tyebjee (1985)
investigated the various sources of finance
preferred by entrepreneurs, which ranged from
debt to equity financing. They found that the
source of financing and the returns required tend
to change and to correspond to the venture’s
particular stage of development. There are also
different types of start-ups (Figure 7.1), each of
which requires different types of funding, as well
as different and increasing returns.
As the firm develops, the level of risk diminishes
and the investors change (Figure 7.2).
<10% <1%
High Potential
Middle-Market
Entrepreneurial Firm
Angels, Venture Capital
123
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE
High
Risk Bootstrapping: F&F
Angel Investors
National youth Development Agency
Micro Credit
Business Partners
Low
Risk Seed Start-up
Figure 7.2: Relationship between types of investors and risk profile
Lack of finance is regarded as a major inhibitor to
business development. Business owners are often
unable to arrange finance from conventional
sources such as banks. Over 95% of all businesses
are started in this country by entrepreneurs who
raise funding from their own savings, friends and
family. While using one’s own funding is not a
trend found exclusively in South Africa, the large
quantities of finance earmarked for organisations
such as Khula Enterprise Finance and the
National Youth Development Agency fund make
this number all the more concerning.
South Africa has a low rate of entrepreneurial
activity and lack of financing has been identified
as a limiting factor, yet cash is available. The
question that needs to be raised is why so few
entrepreneurs are using the available cash.
One reason could be that entrepreneurs do not
124
Venture Capitalists
Private Equity
Stock
Exchange
Commercial
Banks
Early Growth Established
know where to look for funds. They do not know
which organisations to approach and, more
importantly, what facilities each organisation
offers and whether the organisation offers funds
to businesses of their size and sector.
The purpose of this chapter is to examine the
various sources of capital that are available for
entrepreneurial ventures in South Africa. Given
that new ventures, in the form of seed or early-
stage businesses, have different needs to growing,
established businesses, we will start with funding
options for new ventures and progress to funding
options for well-established operations.
A brief overview which illustrates what type of
funding is available and which organisations to
approach for different sized businesses is given in
Table 7.1.
 Chapter 7: Access to Finance for South African Entrepreneurs

Table 7.1: Funding for different sized SMMEs

Business size Size of loan required Who to approach for funding

Micro R800 – R10 000 Small Enterprise Foundation (SEF)
R350 – R 3 500 Khula Micro-credit Outlets (MCOs)
R300 – R10 000 Women’s Development Businesses (WBD)
R300 – R10 000 SA Microfinance Apex Fund (SAMAF)
R500 – R10 000 Marang Financial Services
R1 000 – R100 000 Red Door, Western Cape
Small/Medium R15 000 – R3 million Blue Financial Services
Business Partners Khula start-up
- Anglo-Khula Mining Fund
R100 000 – R2,5 million Enablis-Khula Loan Fund
- Khula-Enablis SME Acceleration Fund
R1 000 – R5 million National Youth Development Agency
up to R5 million Gauteng Enterprise Propeller (GEP)
R250 000 – R20 million Business Partners
Variable ABSA, FNB, Standard, Nedcor, Capitec
minimum R5 million Venture capitalists
Medium/Large max R20 million NEF Imbewu Fund
R5 million – R200 million NEF Corporate Fund
from R1 million IDC

It is advisable to first talk to the potential funder
before putting documentation together. Each
funder has different requirements and these
requirements will also differ depending upon
where you are in the development of your
business. There is no set formula as this can
vary from sector to sector.
7.1 Bootstrapping your borrowing money from a bank. It is a “multi-
business
the winners and finalists of the Ernst & Young
“Entrepreneurs of the Year” awards showed that
the majority of these highly successful people
started their respective businesses with less than
R5000 (McKenzie et al., 2003).
This process is known as bootstrapping, which
means financing a small firm through the highly
creative acquisition and use of resources without
raising equity from traditional sources such as
stage commitment of resources with a minimum
commitment at each stage or decision point”
(Stevenson et al., 1985).

Studies in the United States (Roberts, 1991),
revealed that the majority of start-ups were
launched with small amounts of money as
seed capital. Furthermore, the primary source
of funding was personal savings rather than
outside investors, banks or governmental
agencies. Similar studies done by the UCT
Centre for Innovation and Entrepreneurship
(CIE) at the Graduate School of Business on
Bootstrapping has many advantages for
entrepreneurs because it does not create
an initial debt cycle for the entrepreneurial
business. In addition, it positions the company
to raise second round debt financing from
banks or equity finance from outside investors.
Bootstrapping your business also means that the
owner is using creativity and innovation as the
primary tools to start and manage the business.

125
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE
Cash, while vitally important, becomes a
secondary tool in the business. One of South
Africa’s best-known entrepreneurs, Raymond
Ackerman of Pick n Pay, started out this way
and has built up one of the most respected and
best-known business empires in the country.
There are many other examples of leading
captains of industry in South Africa who started
in a similar manner.
Bootstrapping relies on good networks, trust,
cooperation and a wise use of the company’s
or the entrepreneur’s existing resources.
Entrepreneurs often prefer this approach at
the beginning, rather than going into debt or
giving away some of their company. Many an
entrepreneur has later regretted raising money
by giving away shares of the business. The
saying, “equity finance is the most expensive
form of finance”, holds very true.
Using other people’s resources without having
to incur full cash cost is particularly useful in
the start-up and early growth stages of the
business. The creative and cash-friendly use of
resources can include:
• Borrowing from friends and family.
• Sharing space, people and sometimes
equipment. Clusters such as the Cape IT
Initiative and the Innovative Hub are typical
examples.
• Materials loaned or provided inexpensively
or free by customers and suppliers, secured
by bartering future services.
• Customer-funded research and
development.
• Extending creditor payments. However, this
must be done with the full cooperation of
the supplier. This is an excellent primary
source of working capital for new ventures.
If possible, entrepreneurs should try to buy
on consignment.
• Seeking out the best purchasing conditions
with suppliers.
• Looking for research grants to help finance
product development.
• Foregoing, delaying or reducing
compensation for the entrepreneur and
possibly key personnel.
• Personal credit cards and extending the
home loan (if possible).
• Working from home or from incubators,
126
although the latter have not been
particularly successful in South Africa.
• Borrowing equipment from other businesses
for short-term projects.
• Buying second-hand equipment instead
of new. However, here there is a distinct
trade-off between the possible cost
of high maintenance and machine
breakdown against the savings made
from not buying new.
• Leasing equipment rather than buying.
• Coordinating purchases with other
businesses to obtain maximum discounts.
So how does an entrepreneur begin to tap into
these bootstrapping resources?
Look for the best mentors or advisors who have
been out in the real business world and been
successful. Listen to their advice, weigh it up and
then decide what is best for you. Network with
family, friends and classmates. Talk to buyers of
large organisations, who are generally willing to
give advice and have experience and knowledge
of the industry. Talk to equipment suppliers: they,
more than most people, know what is going
on, what mistakes have been made by other
businesses and therefore what to avoid.
7.2 Angel or informal
investors
Apart from bootstrapping, new venture
entrepreneurs often utilise so-called angels or
informal investors as a source of funding. Who
are angel investors, what can they do and how
can they help aspirant entrepreneurs or even
well-established entrepreneurs?
The term “angels” was originally used on
Broadway, where it was used to describe
wealthy backers of high-risk productions.
Angels or informal investors are rich, often
self-made entrepreneurs who are looking for
investment opportunities. Studies done in the
US (Sohl and Sommer, 2000) and Scandinavia
(Gullander and Napier, 2003) suggest that
the angel capital market is probably ten times
the size of the venture capital market. In South
 Chapter 7: Access to Finance for South African Entrepreneurs

Africa it may not be as large, but angels
certainly play a significant role in assisting new
business development.
Business angels are active, in one way or
another, in every country worldwide. They are
experienced and wealthy entrepreneurs with
significant business and/or industry experience.
They tend not to have any previous relationship
with the entrepreneur and therefore take a more
objective approach to whether or not to invest
in the enterprise. Angel investors almost always
invest in businesses where they have contacts
and skills to offer. Most angel investors tend to
be active or hands-on investors, providing advice
or direct management input to help the business
become established. The key difference between
an angel investor and a venture capitalist is
that the angels invest as individuals or part of
a group, whereas venture capital comes via a
venture capital company which may put a full-
time manager into the business they choose to
fund. Although angels operate part-time in the
business, they often contribute significantly to
the success of the business.
Unlike venture capitalists, who require a defini-
tive return on their investment, angels invest for
a variety of different reasons and therefore often
do not require the high returns demanded by the
venture capitalists. They may seek non-financial
returns such as the creation of jobs in areas of
high unemployment, the development of tech-
nology for social needs or merely the personal
satisfaction of assisting entrepreneurs. for business opportunities.
Even if they require a return for their money, it
is often in the form of “patient money” as they
are willing to wait longer than most financial
institutions for their money. Another major
difference from venture capitalists is that angels
do not cost their time – it is generally given
“free” and willingly.
So how would one find an aspirant business
owner and how do such informal investors
find projects? It is not always easy. William
Wetzel (1982) said that “informal investors,
essentially individuals of means and successful
entrepreneurs, are a diverse and dispersed
group with a preference for anonymity”.
Hence, creative methods are required to
find them. Invariably, such people can
be found by tapping one’s own network
of business associates and contacts.
Attorneys, accountants, bankers and other
professional people provide ideal networks.
Business colleagues, universities and other
entrepreneurs can also be ideal sources of
information. The angels themselves also find
investment opportunities through contacts
and networks, therefore it is often a matter of
meeting on common ground.
In South Africa, it is possible to connect with
angels on the web via the South African
Investment Network (www.investmentnetwork.
co.za/home) which is an online platform that
seeks to connect entrepreneurs looking for
business funding with angel investors looking

Other entrepreneur
Already funded by angels
Seeking to invest themselves

Networks Organizations
Personal Formal matching services
(FF, Colleagues,...) Entrepreneur Angel Alliances
Professional Venture Capital clubs
(attorney, auditor,...) Internet services
Private matchmakers

Publications
Mailing Lists
Newspaper leads and ads

Mostly angels work through informal networks. Get them through referrals.
(Source Howard Frederick)

Figure 7.3: Connecting with angel investors

127
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE
Angels vary considerably in how they evaluate
a proposal, but it is important to remember
that they are not employees of a company
and are investing their own money. Some do
substantial due diligence before meeting and
others may meet the entrepreneur first before
even reading a business plan. They often rely
on their intuition: they evaluate people first and
investigate other aspects later.
Nevertheless, no matter what their approach
is, they source business deals very carefully,
making good use of co-investors and market
contacts, and focusing on the entrepreneur and
his/her team. Their reason for concentrating
on the entrepreneur is that in the early stage, a
business will collapse if the entrepreneur does
not show the right amount of passion and hard
work to get the business up and running.
Before taking money from an angel, it is
important that the entrepreneur also assesses
the angel to ensure a good “fit”:
• Is the angel convinced that the way he/
she did things is the blueprint for all future
success?
• Does he/she possess a string of awkward
preconceptions?
• What were any disputes about?
• How did he/she behave when things went
wrong?
• What is his/her real business network?
• What is his/her real practical experience
that could be of value to you?
• Is it a virgin angel? Lack of experience in
your field could prove problematic if you
are a first-time entrepreneur and perhaps
not in a position to critically evaluate the
advice they have on offer.
• Can they agree on easy and simple
shareholder documentation?
º Consider only giving up a large
minority stake.
º Leave the majority stakes for next
round financing.
• Consider convertible loans instead of
shares.
128
º This helps for the next round venture
capital funding.
Finally, what are the pros and cons of using
angels?
Pros of using Angels
• Angel’s characteristics
o Value-adding
o Geographically dispersed
o More permissive investors
• Investment characteristics
o Seek smaller deals
o Prefer seed, start-up and
early-stage firms
o Invest in all industry sectors
• Added bonuses
o Give loan guarantees
o No high fees
Cons of using Angels
• Little follow-on money
• Want a say in the firm
• No (inter)national reputation to leverage
7.3 Micro-finance
Prior to 1992 there were few official options
available to people wanting to access small
amounts of credit. Banks do not offer micro-
credit, so borrowers resorted to pawnbrokers
or operators in the informal section such as
mashonisas and other informal systems such as
stokvels, burial societies and rotating savings.
The Usury Act Exemption Notice of June 1999
had a great impact on the micro-lending
industry, and several new trends became
apparent, including:
• Increased formalisation of the industry.
• Introduction of new players into the
market.
• Increased formal investment in the micro-
lending industry.
 Chapter 7: Access to Finance for South African Entrepreneurs

All the major banks require personal collateral
or security (in the form of suretyships) from any
borrower who does not fulfil the requirements
of the banks. Many entrepreneurs who do
not have collateral or security turn to micro-
finance organisations catering specifically for
small loans. There are numerous non-profit
organisations which are active in the field, as well
as many commercial micro-finance businesses.
Although the Micro Finance Regulatory Council
offers some degree of protection, care must be
taken when dealing with different organisations.
There are a number of organisations dealing
with micro-credit:
7.3.1 Small Enterprise Foundation
(SEF) (www.sef.co.za/)
SEF began its operations in 1992 with the aim
of alleviating poverty in a sustainable manner
by enabling the poor to “increase their income
through micro-credit and by assisting them in
the accumulation of savings”. SEF lends only
to groups of preferably five women, each of
whom guarantee the others’ payments.
No collateral is required and loans are only for
an enterprise and not for personal use. Table
7.2 provides details of the two funds available
from SEF.

Table 7.2: Micro-funding available from SEF

Fund 1 Fund 2
Type of fund Microcredit Programme (MCP) Tshomisano Credit Programme
(TCP)
Size of fund R15 million R 23 million
Size and range of Initial loan R800 – R1500 Initial loan R800 – R1500
the investment to Max R10 000 Max R10 000
entrepreneurs
Principal goal of the fund To reduce poverty by giving To provide loans to women
marginal or subsistence living below half the poverty
businesses access to micro credit
line (less than R400 per month
per household)
Types of organisations Subsistence and marginal Women living below half the
supported businesses in the Limpopo poverty line (regardless of
province of South Africa whether they own a business
or not)
Target market of the fund Poor rural communities in Poor rural women from
the Limpopo province of the Limpopo province of
South Africa South Africa
Lending criteria Group lending scheme modelled Group lending scheme
after Grameen Bank of modelled after Grameen
Bangladesh. Solidarity groups of Bank of Bangladesh. Gender
up to 5 people are a prerequisite. (women). Income of R400
Groups rigorously tested before or less per month. Solidarity
recognition. groups of up to 5 people are a
prerequisite. Groups rigorously
tested before recognition.
Types of investment Unsecured loans Unsecured loans
Overall target fund 3.7% per month 3.7% per month
returns

129
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE

7.3.2 Khula Micro-credit Outlets
(MCOs)
These outlets have been established in rural
and peri-urban areas where there is a need to
assist women, in particular, to start and expand
their own small businesses. Their locations
and contact details can be obtained on www.
khula.org.za. Through these MCOs, very small
enterprises can raise loans of between R350
and R3 500 in selected groups.
MCOs are encouraged to promote diversification
of business activities and to actively seek “non-
traditional” business activities for women clients.
There is a strong bias placed on small-scale
manufacturing, crafts and tourism. KhulaStart
uses the group solidarity methodology (gives loans
to groups – not individuals). Individuals select
themselves into groups of three to 10 members
and need to meet the criteria established for
group participation. Most importantly, the group
has to be a cohesive one. The group decides,
based on the activity of the individual businesses,
how much each member has to receive, and will
subsequently stand surety for the full amount
owed by the group as a whole.
7.3.3 South African Micro-
finance Apex Fund (SAMAF)
(www.thedti.gov.za/samaf.htm)
SAMAF is a company that was established
by the government to address poverty and
unemployment through the provision of access
to affordable financial services and savings
mobilisation through co-operatives.
It is specifically directed towards the poor and
very poor communities, as depicted in Figure 7.4.

First Economy

Commercial Middle
Banks Class

Salaried working
class, and self
employed (small Existing State Credit Union
Commercial business) Agencies Cooperatives
Micro Lending (Khula)
Second Industry
Economy Economically Active Poor
De

(Micro Enterprise) xxxxxxxxxxx

ve
lop
me
nta

Very Poor
lM

(Survivalist Enterprise)
icr
oF
ina
nc
e

‘Hardcore’ Poor/Destitute

Figure 7.4: South African Micro-finance Apex Fund (Source: SAMAF Website)

130
 Chapter 7: Access to Finance for South African Entrepreneurs
7.3.4 Women’s Development
Businesses (WDB)
(www.wdb.co.za/site/)
The WDB micro-finance targets the poorest
women in the rural areas and provides them
with training and micro loans with the objec-
tive of increasing their household incomes. It
was established in 1991 and is a micro-credit
programme replicating the world-renowned
Grameen Bank philosophy of banking on poor
women. WBD has several products:
• The poverty alleviation programme which
offers training in basic financial skills and
loans of between R300 and R4 000.
• Enterprise development in which recipi-
ents are assigned a business mentor, high
levels of skills training and loans between
R5 000 and R10 000.
7.3.5 Marang Financial Services
(www.marang.co.za)
Marang, meaning “the rays of the sun as the new
day dawns”, is a micro-finance institution with a
focus on making financial products accessible
to emerging entrepreneurs and marginalised
communities. It uses the solidarity/group len­
ding methodology by offering loans ranging
from R500 to R10 000 to groups of between five
and eight members. An enterprise loan can be
taken over a period of four to nine months and
interest is charged at 33% per annum.
Marang requires that the members in the group
are made up of people who:
• Know each other well.
• Live close to one another.
• Trust each other and believe in each other’s
business.
Members are encouraged to assess each other’s
businesses to ensure they are legitimate and that
they will make enough money to repay a loan. As
many of the clients do not have bank accounts,
they are required to open a club account at a
Commercial Bank or Post Bank. Ten percent of
the loan amount must be deposited into this
club account as an initial compulsory savings.
Thereafter, they must deposit a minimum of
R20 per month into this account. This money
belongs to the clients and cannot be withdrawn
during the duration of the loan.
7.3.6 Blue Financial Services
(www.blue.co.za)
Blue Financial Services is listed on the JSE Lim-
ited AltX and offers loans to people who do
not have the start-up capital required. SMME
loans range between R15 000 and R3 million,
depending on the type and size of the business.
7.4 NGO support
In South Africa there are many NGOs, Section
21 and small companies that support enterprise
development. We will discuss only a few.
7.4.1 Zimele Investments (Pty) Ltd
(www.anglozimele.co.za/)
Zimele Investments (Pty) Ltd is the enterprise
development and empowerment initiative
of Anglo American. In line with Anglo
American’s commitment to South Africa’s socio-
economic growth, Zimele concentrates on the
establishment and promotion of small and
medium enterprises (which it has been doing for
almost 20 years).
Zimele provides a fund to the SME sector,
driven by sound commercial principles. The
organisation strives to empower its entrepreneurs,
both financially and managerially, so that
they operate independently. It provides both
loan and equity finance to support start-up or
expansion businesses. Businesses must have a
significant black empowerment shareholding
and management. There must be a transfer
of both technical and business skills to the
entrepreneurs to enable them to participate in
the mainstream activities of the economy.
Anglo Zimele oversees three funds:
• Anglo Zimele Supply Chain Fund:
Assists the group’s procurement
departments in identifying BEE suppliers
and ensuring the channelling of business
opportunities to black-empowered SMEs.
131
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE
It gives support through equity and loan
finance and provides hands-on support
and guidance.
• Small Business Start-up Fund:
This fund was established specifically
to provide loans to start-ups and also
provides support. It is in the process of
establishing 11 small business hubs in
designated areas.
• Anglo Khula Mining Fund:
Launched in 2003 as a joint initiative with
Khula Enterprise Finance to assist small
scale, black-owned mining companies with
funding and technical support during the
typically high risk and exploration phases
of mining projects.
7.4.2 Masakhisane
Masakhisane, meaning “come let’s build each
other together” in Zulu, was established by
AngloGold Ashanti to provide venture capital
to projects located in areas surrounding
their operations. It enters into partnerships
primarily with people from a historically
disadvantaged South African background,
to provide education, capacity-building and
funding with the long-term aim of creating
self-sustaining businesses.
7.5 Government funding
Prior to 1990, SMMEs were supported almost
solely for social reasons as they were regarded
as outlets for labour and a means by which
to provide income-earning opportunities for
the informal sector. As such, this sector was
marginalised and no effort was made to include
them in the mainstream of the economy.
However, post 1994 and following international
trends, the new government of South Africa
chose to adopt a strategy of development
in an effort to encourage the integration of
SMMEs into the national economy. This was
due to the recognition of SMMEs’ potential
contribution to economic growth, reduction
of unemployment and poverty alleviation. A
report by the DTI in August 2008 shows that
132
the SMME sector grew by 27% between 2004
and 2007. The largest growth was associated
with medium-sized enterprises which grew
by 208%. However, the share of micro-
enterprises decreased significantly during the
same period, from 50% of SMMEs in 2004 to
37% in 2007.
In the “Integrated Strategy on the Promotion
of Entrepreneurship and Small Enterprises”,
released by the Department of Trade and
Industry in 2005, the then Minister of Trade and
Industry (Mandisi Mpahlwa) stated that:
“...the promotion of entrepreneurship small
business remains an important priority of the
government of South Africa. Our commitment
is to ensure that small businesses progressively
increase their contribution to growth and
performance of the South African economy in
critical areas such as job creation, equity and
access to markets.”
As a result, government moved rapidly to intro­
duce an integrated strategy which was designed
specifically to address these challenges. Mandisi
Mpahlwa, in the opening speech for the 2008
Small Business Summit, indicated six areas of
intervention, these being:
• Improved access to business support
information.
• Increased access to business finance.
• Improved access to markets.
• Creation of partnerships for the
establishment of business support
infrastructure.
• Creation of a suitable regulatory
environment.
• Improved small business support delivery.
Over the years, numerous government-backed
institutions have been launched to support
and help finance small business development.
Agencies such as Khula Enterprise Finance,
Ntsika Promotion Agency, the Youth
Commission, Umsobomvu Youth Fund and
the National Empowerment Fund were
launched. Several of these agencies proved
to be singularly unsuccessful and a significant
amount of restructuring has taken place over
the last three years.
 Chapter 7: Access to Finance for South African Entrepreneurs
7.5.1 Khula Enterprise Finance Ltd
(www.khula.org.za)
“Khula’s mandate requires it to address gaps in
SME financing by leveraging private sector and
other development funding. The organisation
seeks to benefit SMEs by maximising access to
finance and by maximising the developmental
impact which benefits not only SMEs, but the
South African economy as a whole. Khula
offers loans from R10 000 to R3 million,
primarily to black-owned SMEs for both start-
up and early expansion capital.”
(Setlakalane Molepo:
CEO Khula Enterprise Finance Ltd.)
Khula Enterprise Finance is an agency of the
Department of Trade and Industry (DTI) and
became operational with its first guarantee in
1996. It was established to facilitate access
to finance for SMEs and was funded by a
commitment of approximately R1 billion.
Khula is a wholesale finance institution which
operates across the public and private sectors,
through a network of channels, to supply funding
to small businesses.Hence, entrepreneurs do
not get assistance directly from Khula, but
rather through institutions which include leading
commercial banks, retail financial institutions,
specialist funds and joint ventures of which
Khula is a participant.
Khula’s mandate has three key focus areas,
namely:
• Maximisation of access to finance for SMEs.
• Maximisation of development impact
• Financial sustainability. guarantees for ICT focussed businesses.
Khula offers non-financial services in the form of
a mentorship programme, but also assists SMEs
through a variety of other programmes which
include:
7.5.1.1 The Khula Land Reform
Empowerment Facility (LREF)
This offers financial assistance to emerging
black farmers and entrepreneurs who wish to
invest in agriculture or agro-processing projects,
thereby enabling black South Africans to control
and manage their own land-based income
generating assets.
7.5.1.2 Khula Credit Indemnity Scheme
The purpose of this scheme is to share the
financing risks with the commercial banks,
thus enabling SMEs to access funding from the
participating banks. The funds can be used
for establishing, expanding or buying out an
existing business as well as for the purchase of
business assets and working capital.
7.5.1.3. Joint Venture Funds
Khula has a number of joint venture funds
which include:
• Business Partners-Khula Start-up Fund:
A joint venture initiative between Khula and
Business Partners, which was created to
help entrepreneurs financially to establish
new ventures as well as for early-phase
business expansion.
• Anglo-Khula Mining Fund:
A joint venture initiative with Anglo
American to provide seed capital to junior
mining projects at pre-feasibility and pre-
commissioning phases.
• Regent Factors Reverse Factoring Fund:
A joint initiative between Khula and Regent
Factors aimed at addressing the cash
flow gap experienced by SMEs that have
been awarded contracts by public and
private sector entities. The fund allows
entrepreneurs to access working capital,
thereby reducing the time gap between the
delivery of goods or services and recipient
payments.
• Enablis-Khula Loan Fund:
A joint venture initiative between Khula,
Enablis Entrepreneurial Network and FNB
Enterprise Solutions which provides loan
The Enablis Khula Loan Fund allows
entrepreneurs to obtain risk funding
from R100 000 to R2,5 million. It does
this by providing a 90% loan guarantee
exclusively to Enablis members in South
Africa through its banking partner First
National Bank.
• Khula-Enablis SME Acceleration Fund:
This fund is not sector specific as it
enables businesses including trans­
portation, tourism, agriculture and ser­
vices, and provides risk capital funding
to entrepreneurs with start-up and early-
stage businesses.
133
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE
7.5.2 National Youth
Development Agency
“The National Youth Development Agency
offers entrepreneurship education and
training, business development services,
opportunities to markets as well as loan
financing for the establishment and expansion
of SMMEs.”
(Malose Kekana: former CEO National
Youth Development Agency)
The National Youth Development Agency
(NYDA) was established by an Act of Parliament
at the end of 2008. The Agency was formally
launched by President Zuma on Youth Day,
16th June 2009. It was formed through a
merger of the Umsobomvu Youth Fund and the
National Youth Commission, with the primary
aim of taking youth development to scale and
integrating it across all government and private
initiatives. The objective is that of encouraging
youth (14-35 years) development through
economic participation, skills development
and training, social cohesion and support. The
fund reports to the Presidency and is accessible
through 13 youth advisory centres across the
country as well as 121 youth advisory points.
The NYDA’s economic participation programme
is aimed at providing young entrepreneurs with
access to business support as well as consulting
services for business development, market
linkages and loan finance.
The NYDA provides financing from R1 000 to
R5 million to start, expand, buy into or buy out
existing businesses which confer significant
economic benefits to youth. This financing
can be for franchises, contracts and tenders,
assets and working capital and targets micro-
enterprises and co-operatives as well as small
and medium enterprises. NYDA provides
finance directly and through intermediaries.
Collateral is not necessarily required as the
decision to finance is based upon a full viability
assessment and the ability of the enterprise to
repay the loan. It is cash flow based lending.
Eligibility is based upon the fact that youth
must hold more than 50% of the shares in
the company and must preferably be from
previously disadvantaged communities. Youth
must be or intend to be operationally involved
134
in the business and show total commitment. The
venture must be economically viable and the
principal business must remain in South Africa.
7.5.3 The National Empowerment
Fund (www.nefcorp.co.za)
“The NEF implements its mandate as a
facilitator of the Codes of Good Practice of the
Broad-based Black Economic Empowerment
Act to support the pillars of black enterprise
by providing finance and financial solutions
across a range of sectors through its fund
management division. It also structures
accessible retail savings products for black
people through its asset management
division, which is a custodian of certain equity
allocations in state-allocated investments.”
(Ms Philisiwe Buthelezi: CEO National
Empowerment Fund)
The National Empowerment Fund (NEF) was
established by the National Empowerment
Fund Act 105 of 1998 for the purpose of
promoting and facilitating economic equality
and transformation. In 2003 the NEF shifted
its focus to maximise empowerment in line
with the government’s aim to formalise BEE
transformation across industry sectors. Its
objective is to redress the economic inequalities
caused by apartheid by providing historically
disadvantaged individuals with opportunities to
acquire shares in both restructured state-owned
assets and private business enterprises, and to
foster entrepreneurship within specific groups.
NEF provides funding to black entrepreneurs
to support new and existing business ventures
with start-up, franchising and expansion
capital and with the acquisition of equity
interests in existing business for transformation
purposes. The funding is distributed across
targeted economic sectors such as clothing
and textiles, automotive industry and
transport, metals and minerals beneficiation
and support services, chemicals and bio-
technology, crafts, ICT and aerospace.
The fund is also used for non-financial support
services in the form of pre-investment support
such as business planning and funding advice
as well as post-investment support in the form
of advice and education.
 Chapter 7: Access to Finance for South African Entrepreneurs
The NEF manages three separate funds:
7.5.3.1 Imbewu Fund
This fund aims to cultivate a culture of
entrepreneurship by offering debt, quasi-
equity and equity finance of up to R20 million
as either start-up finance, expansion capital,
procurement financing community development
projects and franchise financing.
• Entrepreneurship finance:
The maximum funding is R5 million with
an investment horizon of five to seven
years in which NEF targets a nominal pre-
tax IRR of between 12% and 18% of its
funding. It is given only to BEE applicants
who are actively involved in the business
in which there is a minimum of 50.1%
black ownership. Recipients are obliged
to participate in the NEF mentorship
programme in which the businesses should
employ a minimum of five people.
• Procurement finance:
The funding is generally limited to R10
million.
• Franchise finance:
The NEF has a preference to fund the top
40 franchises to a limit of R5 million with
a nominal pre-tax IRR of between 12%
and 15% of its funding and an investment
horizon of five to seven years years.
• Rural and community development
projects:
This fund involves projects concerned with
social and economic upliftment in which
there is a substantial ownership by black
employees, although there may be a joint
venture between black and non-black
partners provided that there is a transfer
of skills. The fund is generally limited to
R20 million with a pre-tax IRR of between
10% and 12% and an investment horizon of
seven to 10 years.
7.5.3.2 Corporate Fund
This fund provides capital to black-owned and
managed enterprises which are buying equity
shares in established white-owned enterprises.
There are three products within this fund, namely:
• Acquisition finance:
This provides funding from R5 million to
R100 million in which there is a minimum
BEE ownership of 25.1% post NEF invest-
ment. The investment instruments include
debt, equity and mezzanine finance over an
investment horizon of four to seven years.
• Project finance:
This provides capital of between R5
million and R25 million per project for
BEE applicants seeking to participate in
medium-sized green-fields projects, with
total funding requests of between R10
million and R200 million.
• Expansion capital:
This fund provides between R5 million and
R100 million to entities that are already
black-empowered and that seek expansion
capital to grow the business.
7.5.3.3 Strategic Project Fund
The Strategic Project Fund will facilitate the
acquisition of equity in large strategic projects
where the NEF assumes the role of the BEE
partner. The NEF will warehouse equity on
behalf of BEE participants with the aim of driving
transformation within large national projects of
a strategic nature.
7.5.4 Industrial Development
Corporation (www.idc.co.za)
“In line with our ongoing strategy, there is a
clear emphasis on funding interventions that
will help create and preserve jobs. There has
been a continued focus on labour intensive
industries such as agriculture, clothing,
manufacturing sectors and service industries
as well as support for small and medium
enterprises. Our priority in providing assistance
to distressed companies impacted by the
economic crisis was and will continue to be
enterprises that have the potential to recover
with the market, opportunities that enhance
sector efficiency and ensure strategic capacity
and competitiveness. We do this by stimulating
private sector lending by risk-sharing with other
financiers to improve market liquidity.”
(Geoffrey Qhena: CEO Industrial
Development Corporation)
The Industrial Development Corporation of
South Africa Limited (IDC) is a self-financing,
state-owned national development financial
institution which provides financing to entre-
preneurs engaged in competitive industries.
135
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE

Their objectives are: • To maintain financial independence

• To contribute to the goals of the Shared
and Accelerated Growth Initiative of South
Africa (ASGASA) by providing financing
that will stimulate job creation, investment
activity and economic growth.
• To be a catalyst for economic change
through their Leadership in Development
Strategy.
• To develop economies that are viable,
sustainable and environmentally and
socially responsible.
• To develop small and medium enterprises
(SMEs).
• To accelerate Black Economic Empower­
ment (BEE).
• To further the aims of the New Partnership
for Africa’s Development (NEPAD).
and apply sound business principles to
everything they do.
Although the emphasis is primarily on
development, the financing of buy-ins,
buy-outs or takeovers with significant
entrepreneurial development will also
be considered. Preference is given to the
financing of fixed assets, greenfield projects,
expansions, rehabilitations and projects which
have developmental impact in terms of jobs,
exports, empowerment and downstream
operations.
The operations of the IDC are broken up into
Strategic Business Units (SBU) under a number
of different divisions. The detailed criteria for
funding are available on the IDC website.

Strategic Business Unit Mandate of Strategic Business Unit

Chemical & allied For chemical and allied industries. A minimum loan of R1 million and
industries minimum equity of R5 million at a minimum 8% real after-tax IRR.
Metal, transport and Covers basic iron, steel and non-ferrous metal products, plant,
machinery products machinery and equipment, motor vehicles, components and
accessories.
Wood and paper Covers forestry, pulp and paper, furniture, sawmilling, board
industries production and renewable energy industries.
2010 and construction Main focus is to channel funds to economically viable businesses
and industries directly related to the 2010 FIFA World CupTM in the
construction area.
Techno-industries Covers projects on information technology, communications,
electronics and electrical services.
Textile and clothing Specific focus is on natural and synthetic fibre production, spinning,
knitting, finishing, printing and dyeing, non-woven textiles, industrial
and home textiles, footwear, leather tanning and leather products.
Health and education Special focus is on manufacture of medical equipment, medical
schemes administration, medical and dental practices, clinical
services, hospital and human health services.
Transportation, Special focus is on transport services (road, logistics, maritime,
financial services, aviation and bus), financial services (retail banking acquisitions and
security and catering commercial micro-finance), security services, listed retail acquisitions
and catering services.
Food, beverage and Special focus on the primary agriculture sector, food processing,
agro industries agro-industries, beverage, fishing and aquaculture.

136
 Chapter 7: Access to Finance for South African Entrepreneurs

Strategic Business Unit Mandate of Strategic Business Unit

Mining and Focuses on financial and technical assistance for the development of
benefication mining, benefication and metal projects, acquisition of mining assets
for HDIs and optimising value-addition benefication opportunities.

Public and private This fund facilitates the provision of bulk industrial infrastructure
partnerships in electricity generation, transmission and distribution,
telecommunications (fixed line, wireless and satellites), transport
(roads, rail, airports, ports and pipelines) and bulk water and waste
treatment infrastructure.

Venture capital The main objective is to facilitate the development and

commercialisation of technology-rich South African intellectual
property and provides equity funding of between R1 million and R30
million per project for a significant minority stake of between 25%
and 50%.

Tourism This fund focuses on asset-based finance and seeks to contribute

to the government’s strategy for the tourism industry such as the
establishment of good quality hotels, cultural and heritage products,
arts & crafts and business tourism.

Franchising The strategic business unit finances in the traditional and non-
traditional franchising areas including fast foods/restaurants,
communication & IT, health/beauty, speciality stores, travel, retail,
petroleum and hardware/equipment rental.

Media & motion This unit finances projects in motion pictures, broadcasting, printing,
pictures post-production, publishing, advertising and music.

137
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE
In addition to sector funding, the IDC also provides special funding.
Strategic Business Unit
Risk capital facility
Agency development and support
Support programme for industrial
innovation (SPII)
Fund for research into industrial
development growth and equity
(FRIDGE)
Strategic high-impact project
(SHIP)
138
Mandate of Strategic Business Unit
This unit manages funds sourced from both foreign
donors and the IDC’s internal funds and aims to
develop entrepreneurial skills in SMEs. Each proposal
is considered on its particular merit in which the BEE-
owned business must be at least 25.1% owned by
historically disadvantaged individuals (HDIs).
The IDC in co-operating with other stakeholders
focuses on improving business confidence in rural
areas, under-developed provinces and townships. IDC
has established 20 development agencies to deliver a
variety of projects.
The SPII currently consists of three schemes:
Product process development: finance provided for
small, very small and micro- enterprises in the form of a
grant with a maximum amount of R500 000.
• The matching scheme: finance provided for SMEs
up to 50% - 75% of the qualifying cost incurred
during the technical development stage to a maxi-
mum of R1,5 million.
• The partnership scheme: a conditionally repayable
grant of 50% of the qualifying cost incurred during
development activity with a minimum grant amount
of R1,5 million.
FRIDGE funds investigations, studies and facilitation
processes leading to the generation of information,
knowledge and/or action initiatives aimed at
improving South African industries’ global economic
competitiveness.
This unit proactively identifies, conceptualises and
develops sustainable greenfield projects with high
development, employment, environment and/or
community upliftment impact. The minimum project size
considered should be at least R100 million.
 Chapter 7: Access to Finance for South African Entrepreneurs
7.5.5 Innovation Fund
(www.innovationfund.ac.za)
The Innovation Fund was established in 1999
by the Department of Science and Technol-
ogy to promote technological innovation
through investing in late-stage research and
development, intellectual property protection
and commercialisation of novel and inventive
South African technologies. It is managed by
the National Research Foundation. It is open
to all in the research science, engineering and
technology fields including individuals, NGOs,
science councils, private companies, SMEs and
tertiary institutions.
A number of different funds and support services
are offered.
7.5.5.1 Patent Support Fund
• For SMEs: Directed primarily to BEE
components up to a maximum of R250 000,
extending over a maximum period of three
years in the form of a convertible loan,
equity or royalty.
• For research institutions: Varying
amounts from R18 000 to R80 000 paid
to the investor(s) through the Technology
Transfer Office.
• For techno-entrepreneurs: Primarily for
entrepreneurs from a previously disadvan-
taged background, in the form of a grant up
to a maximum of 75% of the cost of filing a
Provisional Patent application, with a limit of
R350 000. The invention must comply with a
novelty requirement.
7.5.5.2 Seed Fund
The fund invests in future development and
commercialisation activities to promote a
particular technology. It could fund activities
such as:
• Evaluating prototypes against customer
requirement.
• Turning prototypes or entrepreneurial ideas
into pre-production products.
• Attracting experienced management to an
opportunity.
• Developing marketing material and
marketing to customers.
• Licensing of technology to manufacturers
and for distribution.
• Transfer of technology for manufacture.
• Purchase of hardware for scale-up from
prototypes.
• Supporting IP protection maintenance
costs.
7.5.5.3 Technology Advancement
Programme (TAP)
TAP invests in end-stage research and
development projects from proof-of-idea/
science to proof-of-concept. It assists in the
conversion of research ideas into commercially
useful end-products and provides funding over
three years up to a maximum of R5 million per
year, but not exceeding R15 million for the entire
project. TAP is open to publicly-funded research
institutions and provides funding for research in
key areas of science and technology.
The Innovation Fund will generally seek to
acquire up to a maximum of 20% equity stake
through its investments.
7.5.6 Gauteng Enterprise
Propeller (GEP) (www.gep.co.za)
GEP is a provincial government agency
established in 2005 under the auspices of
the Department of Economic Development to
provide non-financial support and financial
support, and to coordinate stakeholders for
the benefit of SMEs in Gauteng. The financial
support comes in various forms, provided the
entrepreneur has personally contributed in
an amount which depends upon “business
affordability”. The agency has, however, not
been rated as either efficient or effective by
many SMMEs.
7.5.6.1 Start-up finance
This programme caters for financial
requirements up to R2 million and is directed
towards SMEs which cannot get loans from
traditional lending institutions because of
either insufficient collateral or lack of a
favourable track record. The business must be
a commercially viable enterprise mana­ged by
the owner and based in Gauteng.
7.5.6.2 Franchise finance
This programme provides funding required
to acquire a new or existing franchise up to a
maximum of R5 million.
139
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE
7.5.6.3 Contract finance
This fund is geared to SMEs which have secured
viable contracts from government departments,
public entities and private sector companies.
Finance is available up to R5 million.
7.5.7 Red Door
“Many small businesses face serious
constraints to growth, including lack of access
to capital, business skills and information,
infrastructure and technology. The Red Door
concept perhaps offers a way out of this
logjam.”
(Haike Alfeld: Director of Africa for
World Economic Forum)
The Western Cape’s RED Door Initiative
(Real Enterprise Development) for developing
small business in the province was started in
November 2004. The RED Door is a one-stop
shop for new and existing businesses looking South African government to develop the small
for assistance, advice and finance - from the
most basic to the most sophisticated.
The Red Finance Programme, managed
by Casidra on behalf of the Western Cape
Department of Economic Development and
Tourism, has as its key objective the creation
of new jobs. The project provides financial
and non-financial support through services
such as mentorship and capacity building to
historically disadvantaged individuals, SMMEs
and cooperatives.
Funding is provided in the form of a loan and
not a grant and this is done in four ways:
• Survivalist programme:
funding of between R1 000 and R10 000.
• Small business fund:
funding of between R10 000 and
R100 000.
• Cooperative support programme:
maximum fund up to R100 000.
• Bridging finance:
maximum of R50 000 in which there is a
valid government, municipality or state-
owned enterprise contract.
All beneficiaries will receive pre-funding
mentorship of one month and a post-funding
mentorship of at least six months. The maximum
140
repayment period for the loans is 36 months
interest free.
7.6 Private funding
7.6.1 Business Partners
(www.businesspartners.co.za)
“To touch as many SMEs as possible with our
full service offering: risk finance, mentorship,
consulting and technical assistance as well as
real estate accommodation and management
services.”
(Nazeem Martin: CEO Business Partners Ltd)
Business Partners (Ltd) is the successor of the
Small Business Development Corporation
(SBDC) – an initiative of the pre-democracy
business sector in South Africa. The current
South African government still has a 20.7%
shareholding in Business Partners through
Khula Enterprise Finance. Seventy percent is
owned by large corporations such as Remgro
Limited, Sanlam, Billiton SA, ABSA, First
Rand, Old Mutual, Nedcor, Standard Bank,
Anglo and De Beers. Three percent is held
for employees and less than 5% is owned by
private individuals.
Business Partners’ funding focus is on small
and medium-sized enterprises, regardless of
race, gender, industry/sector or business stage.
However, the company has development targets
and accordingly strives to ensure that black
and female entrepreneurs constitute 46% and
41% respectively of new deals financed in any
given financial year. Business Partners does
not consider funding for on-lending, non-profit
organisations and agriculture. It aims to provide
its full service offering to SME entrepreneurs
including customised risk finance solutions;
property broking and property management;
mentorship and consulting; and ongoing
technical assistance.
The specific needs of the entrepreneur are met
by individually structured financing solutions,
ranging from single-owner private enterprises to
multi-owner management buy-outs or buy-ins.
 Chapter 7: Access to Finance for South African Entrepreneurs

Business Partners focuses on businesses some transactions Business Partners structures

requiring finance ranging from R250 000
to R20 million. However, Business Partners
prefers to stay within a maximum exposure of
between R5 million and R7 million as the first
round of funding. This allows Business Partners
to offer a second and/or third round of funding
within the limits of the R20 million maximum
exposure. Since more than 90% of SMEs are
lifestyle (as opposed to “blue sky”) businesses,
the bulk of the businesses funded by Business
Partners are lifestyle businesses.
a financing solution which will entail the
payment of a royalty fee, usually based on
turnover, in addition to the monthly repayment
of capital and interest.
In January 2009, Business Partners restructured
its South African business investment operations
into two divisions – coastal and inland – each
headed by an executive director. These divisions
have geographically-based business units, as
well as specialised/themed funds as follows:

Business Partners is not too concerned about Coastal division:

collateral/security, as the primary drivers
of whether to finance the entrepreneur or
not include a decision on the viability of
the business, a thorough assessment of the
entrepreneur, a reliable financial management
system and the ability to attain a fair deal. The
extent of security/collateral the entrepreneur
can offer will, however, determine the extent
of the financial risk Business Partners will
have to carry. As they expect an acceptable
return for a given financial risk, the quality
and level of security will affect the cost to
the entrepreneur. The lower the quality and/
or level of security/collateral, the higher the
proportion of funds that will be at risk and the
higher the return Business Partners will expect
as “compensation” for the risk – therefore, the
greater the cost of finance to the entrepreneur.
Business Partners also charges a due diligence
and administrative fee which equates to 1.5%
of the funding provided. Other charges may
include legal fees which are usually applicable
if, for example, bonds have to be registered. In
• Western Cape (plus the western half of the
Northern Cape) business unit.
• Eastern Cape business unit.
• KwaZulu-Natal business unit.
• Property investments business unit.
• The Business Partners-Khula Start-up Fund.
Inland division:
• Inland East (East Rand, Pretoria, Limpopo
Province and Mpumalanga).
• Inland West (eastern half of Northern
Cape, the Free State, Northwest rovince,
as well as the West Rand).
• Greater Johannesburg.
In addition, Business Partners International
(BPI) has established offices in Kenya and
Madagascar where SME Finance Funds
are managed, where business investment
professionals are based and from where SME
finance decisions are taken. A third fund is now
being established in Mozambique and should
be in a position to make SME investments by
December 2009.

The Business
Egoli e’Thekweni iKapa Property
Partners/Khula
Investments Investments Investments Equity Fund
Start-up Fund
Size of fund R500m R500m R500m R150m R500m
Nature of General General General Black Start-up Property
fund equity
Minimum R250 000 R250 000 R250 000 R150 000 R2m
investment
Maximum R20m R20m R20m R3m R20m-R60m
investment (syndicated)
Willing to Yes Yes Yes Yes Yes
syndicate

141
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE

The Business
Egoli e’Thekweni iKapa Partners/Khula Property
Investments Investments Investments Equity Fund
Start-up Fund
Industry None None None None Property
preference
Industries Agriculture Agriculture Agriculture Agriculture and Agriculture
excluded and and and on-lending, sin and on-
on-lending on-lending on-lending industries lending
Stage of All All All Start-up, early All
investment stage
Minimum Normally Normally Normally Normally 20% - 90%
and minority minority minority minority
maximum shareholding shareholding shareholding shareholding
equity
usually taken
Geo­­ Gauteng, KZN Western SA SA
graphical Free State, Cape, some
preference N/Cape, Eastern &
N/West, Northern
Limpopo and Cape
Mpumalanga

7.7 Debt financing amount over an agreed period of time at an

“Leveraging a company is like driving your
car with a sharp stick pointed at your heart
through the steering wheel. As long as the
road is smooth it works fine. But hit one bump
in the road and you may be dead.”
(Warren Buffet)
agreed rate of interest. Once the loan is repaid,
the entrepreneur has no further obligations to
the institution. Short-term borrowing, which is
often for a year or less, is generally used to fund
working capital whereas long term debt is more
often used to finance the purchase of property
or equipment, with the purchased asset serving
as collateral for the loan.

Debt financing is when the entrepreneur There are a number of advantages and
borrows money from a bank or some other disadvantages associated with using either debt
financial institution and has to repay the or equity finance.

142
 Chapter 7: Access to Finance for South African Entrepreneurs

Table 7.3: Equity versus debt financing (Source: Sources of funding for New Zealand’s
Entrepreneurs by Howard Frederick)

Equity Financing Debt Financing

Advantages Disadvantages Advantages Disadvantages
• Large injections of • Capital available • Amount bor- • Creates a debt
capital usually in large rowed can vary obligation
• No interest pay- amounts according to • Interest repay-
ments • Dilution of owner’s needs ments affect in-
• No obligation to equity or • Does not dilute come statement
repay capital shareholding shareholding and cash flow
• Often management • VCs expect high provided paid • Collateral is
assistance returns (>50%) back usually required
• Often excellent • Investors generally • No interference from a bank
networks want to exit in a providing regu- • If money
given period lar payments borrowed from
are made friends and
family it can
cause bad
feelings
• Can increase the
length of time to
break-even

7.7.1 South African • ABSA (Amalgamated Banks of South

banking sector
In South Africa there are two forms of banks,
each of which has specific requirements and
criteria for lending.
7.7.1.1 Commercial banks
Commercial banks include Amalgamated Banks
of South Africa/ Barclays International (ABSA),
First National Bank (FNB), Standard Bank,
Capitec Bank and Nedcor.
Certain banks may offer businesses unsecured
short-term loans, but in most cases the loan is
secured by fixed assets, receivables, inventories
or other assets. In almost all cases the
entrepreneur will be required to sign a deed of
suretyship, guaranteeing the repayment of the
loan in his/her personal capacity.
The types of funding, conditions and require­
ments of the banks vary considerably and
change from time to time. Specific details
can be obtained directly from the banks or by
visiting their websites.
Africa) (www.absa.co.za).
• Nedbank (www.nedbank.co.za).
• First National Bank (www.fnb.co.za).
• Standard Bank (www.standardbank.co.za).
• The African Development Bank (www.afdb.
co.za).
• The Land Bank (www.landbank.co.za).
• Capitec Bank (www.capitecbank.co.za).
All banks require collateral in which fixed assets
serve as the prime source of security, followed
by insurance. Most banks are not concerned
with the entrepreneur’s future prospects (as
in the case of angel investors and venture
capitalists), but are more concerned about
whether their money can be paid back. Banks
in South Africa vary in their requirements when
considering whether or not to lend money to
a potential client. However, the five more
common questions tend to revolve around:
• What do you plan to do with the money?
• How much do you need?
• When do you need it?
• For how long will you need it?
• How will you repay the loan?

143
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE
Almost always, banks require a comprehensive
business plan. Each bank has its own specific
requirements with respect to the business plan.
These requirements can also vary within banks,
across regions and from branch to branch.
Each bank has a variety of different offers to
businesses, which tend to change from time to
time depending upon market and regulatory
circumstances. In almost all cases, loans are
rarely given to start-ups and substantial collateral
plus suretyship will be required. Little emphasis
is given to future annual growth projections and
return on investment. Of particular importance is
the cash flow of the business during the first 12
months as this is indicative of the sustainability of
the business.
Capitec Bank is unique in that it provides small
loans of up to R50 000 over terms ranging from
one to 36 months. Credit “is approved within
minutes and the cash available immediately in
your Capitec Bank account.”
7.7.1.2 Merchant banks
In banking circles, and according to Wikipedia,
“a merchant bank is a financial institution
primarily engaged in offering financial services
and advice to corporations and wealthy
individuals.” The main difference between a
merchant bank and a commercial investment
bank is that the former invests its own capital in a
client company whereas a commercial bank uses
its clients’ money to reinvest.
South African merchant banks include:
• Rand Merchant Bank (RMB) (www.rmb.
co.za).
• Rennies Bank (www.renniesbank.co.za).
• Sasfin Bank Ltd (www.sasfin.co.za).
• Investec Bank Ltd (www.investec.com).
7.7.2 Foreign banks
There are a number of foreign banks in South
Africa offering a variety of services, details of
which can be obtained by visiting their websites.
• Bank of China, Johannesburg Branch
(www.bank-of-china.com).
• Citibank N.A. (www.citibank.co.za).
• Deutsche Bank AG (www.db.com).
144
• HSBC Bank plc, Johannesburg Branch
(www.hsbc.com).
• JP Morman Chase Bank, N.A. (www.
jpmorgan.com).
• Societe Générale, Johannesburg Branch
(www.socgen.com).
• State Bank of India (www.statebank.co.za).
7.8 Venture capitalists
Venture capitalists (VC) are independent com-
panies or organisations which are an extremely
valuable and powerful source of equity funding
for new or existing ventures. The very nature of
the word “venture” suggests that this type of cap-
ital certainly involves some sort of risk or even
gamble. Venture capitalists all over the world
differ in what they offer: some are generalists,
others specialists, while others may concentrate
on specific geographical areas. According to the
Harvard Business School (1981):
“The venture capital industry supplies capital
and other resources to entrepreneurs in
business with high-growth potential in the
hopes of achieving a high rate of return.”
Most funds run for a period of seven to 10 years,
at which stage the venture capitalist requires its
initial sum back plus a substantial return. The
venture capitalist companies are generally run
by experienced professionals who provide a full
range of services, which include:
• Capital for start-ups and expansion.
• Business administration and financial
advice assistance.
• Assistance in negotiating technical
agreements.
• Help and guidance in recruiting suitable
employees and developing employee
contracts.
• Assistance in areas such as risk
management, insurance planning and
counselling.
Good venture capitalists will provide:
• Wisdom and perspective based upon their
experience.
 Chapter 7: Access to Finance for South African Entrepreneurs
• Pivotal advice in the development of the
venture.
• Relations to speed up the commercial
growth of the company.
However, entrepreneurs need to do some
investigation before approaching a venture
capitalist. For example, they need to know:
• To what extent the management of the
venture capitalist will become involved in
the business.
• At what stage of the business cycle the
venture capitalist will get involved.
• Whether the venture capitalist has an
understanding of the business and the
industry and whether they are actually able
to provide the guidance and assistance
required by the entrepreneur.
• How much of the equity of the business
the entrepreneur is willing to give away in
return for money and expertise.
• When the venture capitalist intends to exit
and under what conditions.
• Whether the venture capitalist will be
receptive to second round financing.
Spending sufficient time considering these
questions is extremely important because once
the business has negotiated a contract with the
venture capitalist, the entrepreneurs and the
venture capitalist are “married” and will have to
work towards a common goal until the venture
capitalist has harvested the investment.
In South Africa, there are very few true venture
capitalists and those that exist are in high demand
and can be therefore be extremely selective.
However, it is still important to fully research the
venture capitalist so that you know what they
require and have a clearer idea of what it would
mean to deal with them. It is also important
to understand when it would be better to walk
away from a deal. In researching them it is vital
that you ask about previous deals done by the
venture capitalist and, if possible, talk to those
companies with whom they have had dealings.
When pitching your idea to the venture capitalist,
be direct, honest and realistic. Do not embellish
facts, give vague answers or dodge questions.
The venture capital market in South Africa is
small and “everyone knows everyone”, so once
you have developed a poor reputation it will be
more difficult to use this form of financing.
Sourcing venture capital companies can be done
by networking or contacting the South African
Venture Capital Association (www.savca.co.za).
However, the SAVCA list contains a number of
private equity companies and only a few true
venture capitalists.
7.8.1 HBD Venture Capital
(www.hbdvc.com)
HBD Venture Capital was set up by Mark
Shuttleworth and some of the team from Thawte,
after its sale to Verisign. The intention of the fund
is to find winning ideas which can be improved,
harvested and sold on, in much the same way
that Thawte had been.
Being from an IT background, the team behind
Fund 1 tends to fund investments with a distinctly
technology/ IT slant, a trend which is evident when
reviewing the composition of the companies in
the fund.
Initially only start-ups and very early stage
enterprises were considered for the fund, R75
million having been made available for such
investments. A second fund has subsequently
been opened, which no longer funds start-ups,
but rather high potential ventures with an existing
revenue stream.
7.8.2 Biotech Venture Partners
(Pty) Ltd (www.bioventures.co.za)
Bioventures is South Africa’s first niche
biotechnology and life sciences venture capital
fund. Bioventures was formed during 2001
and began operations in January 2002. The
fund is managed by a company owned by the
management team Java Capital Holdings and
Real Africa Holdings.
Bioventures invests in South African start-up
companies that have the following features:
• A quality and balanced management team.
• Proprietary technology that gives the
business a competitive advantage.
• A large and growing market, with a
preference for an international market.
145
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE
• Preference for multiple product/market
companies rather than single product/
market companies.
Bioventures is an equity investor and does
not offer loan financing. It is interested in co-
investing with other like-minded investors as an
active investor and takes a seat on the board of
companies it invests in. However, it is currently
fully invested and closed for further investment.
7.8.3 Triumph Venture Capital
(www.triumphvc.co.za)
Triumph Venture Capital is an independent
South African venture capital company which
facilitates substantial and innovation-driven
economic growth. It is wholly owned and driven
by a dynamic multi-disciplinary management
team that comprises South Africans with
extensive business, technical and investment
management experience. It is the fund manager
of the South African Intellectual Property Fund
(SAip Fund). At present its investors include
Sanlam Investment Management, the CSIR,
the University of Pretoria and the IDC.
The fund makes long term (three to seven
years) equity investments in start-ups, early
stage and expansion-stage South African
technology companies that have significant
growth potential. Investments range from R3
million to 15% of the size of the fund at any
one time.
The fund assists South African research
institutes and universities to optimise the
commercialisation of their technologies by:
• Increasing the domestic demand for their
intellectual property.
• Increasing their collaboration with
industry.
• Increasing the level of collaboration
among research institutes.
7.8.4 Cape Biotech
(www.capebiotech.co.za)
The Cape Biotech Trust was born in 2002,
from the Cape Biotech Initiative, as a forum to
facilitate communication between researchers,
industry and government. It is funded by the
146
Department of Science and Technology (DST)
with the objective to promote and develop a
biotechnology industry in the Western Cape
through project investments and capacity
development.
7.8.5 Hasso Plattner Ventures
Africa (www.hp-ventures.co.za)
Hasso Plattner Ventures has approximately
R350 million to invest in promising innovative
technology companies that are able to expand
into the global market.
7.8.6 Cape Venture Partners
Cape Venture Partners (CVP) is a team of
highly qualified professionals with extensive
entrepreneurial and business experience,
and a particular emphasis in the technology
field. CVP identifies high potential technology
companies and accelerates their development
to international success. The company is
interested in funding organisations that have
a concept that should be scalable and have
significant growth potential, with the ability
to dominate a niche market segment. CVP
enhances the probability of a company’s
success by bringing to the table connectivity,
knowledge, strategy and experience. They do
not consider lifestyle businesses.
CVP is aided in its endeavours by its extensive
network of industry executives, investors,
entrepreneurs and service providers. They are
based in Cape Town, South Africa, which is
fast emerging as a leading hub of technology
innovation.
7.9 Conclusions and
recommendations
Many aspirant and existing entrepreneurs
complain that there is a lack of access to
funding in South Africa. However, studies
done by the Global Entrepreneurship Monitor
(GEM 2004) clearly show that South Africa is
no worse off with regards to access to funding
than other developing or developed countries.
 Chapter 7: Access to Finance for South African Entrepreneurs
Financial institutions have not adapted to
the changes in the South African business
environment. Banks are understandably
reluctant to lend to SMMEs without sufficient
collateral or surety, since they are the custodians
of their clients’ money and are required to
produce an acceptable return on investment.
It needs to be queried whether it is the banks’
responsibility to provide money for a possible
bad venture or one that has been poorly
thought through. It is important to note that
while banks may still be conservative in their
lending strategy, entrepreneurs applying for
finance are often under-prepared and do not
provide sufficient relevant information.
A number of government institutions are
inefficient and are controlled by political
appointees who do not work in the best interest
of the entrepreneurs.
Entrepreneurs and owner/managers of SMMEs
are often not able to prepare business plans that
are acceptable to institutions providing finance.
Entrepreneurs often use the services of small
business advisors to prepare their business
plan. Many of these advisors have little or no
business experience and use a generic template
to produce standardised plans. Each business
is unique, and therefore requires a business
plan written specifically for that particular
business. The business plan depends upon
the particular product or service offering and
needs to emphasise or clarify certain specific
aspects. In many cases the entrepreneur does
not understand the business plan that has been
prepared by the services provider. The institution
is providing funding to the entrepreneur, not
to the service provider, and will therefore be
reluctant to lend. It is critical that business plans
are easy to read, understandable, economically
viable and, above all, realistic.
Often the entrepreneurs have totally unrealistic
financial expectations and are offering a
product or service that is neither compelling nor
different. GEM studies have shown that South
Africans tend to have a “copycat” mentality and
many of the businesses that are seeking funding
are me-too businesses. These businesses will
be entering overtraded and highly competitive
markets that often offer small market shares
and low margins. It is unsurprising that financial
institutions are hesitant to lend to these
businesses.
There are a number of initiatives that could
and should be introduced which will have a
significant impact on access to funding and
hence on stimulating entrepreneurial activity in
South Africa.
• Centralised website: A comprehensive
website should be constructed which lists
all the institutions that offer funding to
SMMEs. The site should give the name of
the institution, the contact details, the funds
on offer, what they offer funds for and the
criteria for funding. There should also be
a cross-reference site through which an
SMME requiring funds for a particular
venture can find out which institutions
provide funds for that venture.
• Institutions offering finance and small
business support should ensure that their
websites are kept up to date and contain
the latest information. Several websites
currently refer to Ntsika Promotion Agency,
which was disbanded almost three years
ago. Addresses, contact numbers and
names are not regularly updated and in
some instances are years old.
• Commercial banks need to rethink their
strategy of asset-based collateral lending
and rather look at new innovative ways
of supporting SMMEs. Capitec Bank has
gone a long way towards helping to solve
this problem.
• Government funds: There are a variety of
different government-funded organisations
which are mandated to promote SMME
activity in South Africa. In several cases
their activities tend to overlap. A number
of organisations that have received
considerable government funding proved
to be singularly unsuccessful and were
closed, only to be replaced by a larger
organisation. Unless both the business
model and operational capacity of these
organisation are significantly different to
the organisations they replace, it is unlikely
that they will offer services that are any
better.
Such an example is the recent closure of
the Youth Commission and Umsobomvu
147
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE
Youth Fund, both of which did little to
promote entrepreneurial development and
were headed by political appointees and
not professional, experienced executives.
The government needs to ensure that the
new organisations are more effective.
Preliminary evidence seems to indicate
that it is extremely difficult to contact the
appropriate people in these organisations
and frequently staff do not return calls or
respond to queries posed by the enquiring
SMMEs. If these organisations are to offer
benefits, they will need to be headed by
professional, experienced executives and
not political appointees. The correct
staff should be hired and staff should be
correctly trained and incentivised based
upon actual performance and results.
Small business advisory services
and government institutions serving
this market should be evaluated on
actual performance. It is important
to differentiate between preparing a
business plan, registering a business,
and actually providing the support to
allow the business to start trading. Actual
performance should be measured not by
the number of business plans that have
been funded, but the number of business
plans that are translated into a business
that is able to operate for more than three
months.
Assistance in completing a tender document
should receive minimal reward unless the
assistance leads to the business being awarded,
and most importantly, completing the tender
148
project. It is imperative that the actual business
is rewarded, and not the processes leading to
potential business activity.
Given the difficulties faced by government
organisations, it may be necessary to link
these organisations with proven private sector
organisations such as Business Partners, and
to ensure that, as indicated above, the concept
of performance is carefully reviewed and
rewarded.
The provision of funding needs to be linked to
mentoring by experienced consultants and the
attendance of suitable programmes designed
to give entrepreneurs the necessary skills to
effectively run and manage their operations.
Many entrepreneurs in new businesses lack the
skills and experience to survive and grow. South
Africa has an abnormally high level of business
failure. This is evident in the disparity between
the number of start-up firms (in existence for up
to three months) and the number of established
firms (firms that have paid wages for more than
three and a half years).
South Africa already has low entrepreneurial
activity rates in comparison to similar
countries in the GEM cohort. Not only is the
entrepreneurial rate low but South African
businesses are, in large numbers, unable to
progress from start-ups to established firms.
A key part of reversing this trend will include
linking funding to mentoring and basic training,
which will contribute significantly to minimising
business risk. Partnerships should be formed
between universities, private enterprise and
government to establish such support.
Oliver’s story...
Entrepreneur Scores with Supa Strikas
SUCCESS SUMMARY
Oliver Power can attribute much of his
success with his comic book empire Supa
Strikas to having the ability to bring to life a
unique and inspiring concept. Combining
the visual medium of graphic story-telling
with the youth's passion for soccer, has
enabled him to tap into a market which
had never been explored before. His keen
interest in media, as well as essential
skills in sport sponsorship, helped him
to launch his business sucessfully. By
cleverly incorporating branding and
product placement into the comics and
forging great business partners, he now
boasts the world's largest circulation for
a monthly comic book.
Oliver Power is an entrepreneur who has
turned comic book fiction into real life
success. He became one of the leading
figures in the comic book industry today as
the man behind Strika Entertainment, the
company that produces Supa Strikas – the
first comic of its kind in Africa.
Co-founded in early 2001 with brother-in-law
Lee Hartman and cousin Andrew Smith, Strika
Entertainment has gone from a small South
African comic book business to an internationally
recognised name. In less than a decade it has
monopolised the sports comic book market in
developing nations.
We initially struggled to
get people to believe in
our concept and take a
chance on a couple
of guys with a ‘wacky
comic idea’.
With a circulation of 1.1 million copies sold across
17 countries and four continents, this successful
concept has led to similar publications being
launched in India, Pakistan and Latin America.
“Lee, Andrew and myself decided to start Strika
Entertainment as we felt the media landscape in
South Africa lacked engaging products for the
lower middle class youth segment. We thought
combining the visual medium of graphic story-
telling with the youth’s passion for soccer had the
potential to be a winning recipe,” says Power.
A devoted husband and father of two, Power has
seen the business grow from a basic concept into
one of the world’s largest circulating monthly
comic books. Their flagship product, Supa
Strikas, tells of the trials and tribulations of a
fictitious soccer team. With a readership age
spanning generations, the publication has proved
149
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE
highly successful with the African youth market.
This innovative home-grown comic has caught
the hearts and minds of people across Africa.
Supa Strikas thus could not have provided a better
platform for the business to grow.
Strika was a
great way for
me to combine
my experience
in securing sport
sponsorship, love
of innovative media
platforms and
entrepreneurial
ambitions.
With a strong interest in media, Power obtained
his Honours in Journalism at the University
of Stellenbosch. Prior to starting up Strika
Entertainment, he was involved in a sport
sponsorship internet company where he was
responsible for securing sponsorship – skills
which, no doubt, proved invaluable when
launching Strika Entertainment.
“Strika was a great way for me to combine my
experience in securing sport sponsorship, love of
innovative media platforms and entrepreneurial
ambitions,” comments Power.
A large part of Supa Strikas’ commercial success
has to do with the in-story branding/ product
placement. Together with the support of sponsors
such as Caltex, Visa and Coke, and the successful
partnerships with the Sunday Times/ City Press,
the business model for the comic has created a
blueprint for success.
With no previous comic/ animation production
experience, Power and his co-founders have
150
worked hard and have now seen Strika
Entertainment become a success over a variety of
media. From comic books to animated television
shows, branded merchandise to mobile content, it
is no wonder that this innovative idea soon caught
the interest of media giant Media24/Naspers, who
acquired the business in late 2007.
Despite the success of his business, Power
experienced a number of obstacles when starting
up: from persuading the sponsors to take a chance
on his idea, to convincing potential publishers that
comic books were in fact what the youth were
interested in.
“We initially struggled to get people to believe in
our concept and take a chance on a couple of guys
with a ‘wacky comic idea,’” remembers Power.
As their business model is a relatively simple
one, it did not require a lot of capital investment.
As a result, once the initial problems were
resolved, it was relatively easy to acquire
new markets. Hav­­ing over­­­come these hurdles
Supa Strikas has now grown from being a
small supplement in a press newspaper to
being the world’s largest circulating monthly
comic book.
For Power it is rewarding to see that the talent of
the team and of South African artists has been
well received across the globe. “Watching our
characters appearing on foreign TV or receiving
colourful fan letters and emails from around the
globe is incredibly rewarding,” enthuses Power.
Oliver Power’s ability to bring to life a unique
concept has proved to be an inspiration to
South Africans and indeed entrepreneurs
worldwide. ­
His advice for aspirant entrepreneurs is simple:
“Do not be dissuaded from your vision,” says
Power. “Always seize the opportunities that
come your way and never get too far away
from the frontline of your business operation.”
He is now enjoying some time out whilst
planning his next business adventure.
Zieyaad’s story...
Beating a Path to Success
SUCCESS SUMMARY
At just 23, Zieyaad Isaacs is making a
name for himself in the panelbeating
industry in Cape Town. Isaacs’ story
shows that passion, determination, a
focus on client service and the right
skills are all essential components of a
well-oiled successful business.
Zieyaad Isaacs knows a thing or two about
cars. His late father spent his career in the
motor industry. Having grown up around
cars and later working as a salesman in
the industry, Isaacs felt, with his father’s
encouragement, that he could make a
success out of owning his own panelbeating
business.
“Growing up, I was never really a person who was
given to studying,” he says, “but I had a dream of
owning my own business.”
In order to realise his dream he knew that he had
to knuckle down and gain the right expertise.
On seeing an advert for the Raymond Ackerman
Academy of Entrepreneurial Development in
a newspaper, he signed up and completed
the course in 2005. The Academy, based
at the UCT Graduate School of Business,
provides life and business skills to about 100
young people every year, most of them from
disadvantaged backgrounds.
You have to work hard and
you have to be motivated
to establish a good
reputation and keep that
reputation.
The six-month course was just what Isaacs
needed to give him the jumpstart to starting his
151
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE

own business. He says that what he learnt on the
course comes into play every day as he runs his
business, oversees work and deals with clients.
His company, Aden Coachworks, is based in
Parow Industria in Cape Town and today employs
17 people.
Isaacs says that initially it was difficult to find the
right staff to do the job to the high standards he
wanted.
But having learnt the techniques of teamwork at
the Raymond Ackerman Academy he dealt with
his staff as individuals to bring out the best in
them, and now has a team that delivers a service
of the highest order.
the service that I offer, has given me tremendous
self-confidence.”
But the ethics by which he runs his business, he
says, derives from the fact that he comes from a
close-knit family. In particular, he credits his late
father who is also his role model.
“My father instilled in me the importance of
working well with others and the ethics of loyalty.
He also helped me to start this business and
his belief in me helped me to believe that I can
do this. I already have plans to open another
branch and am continually trying to upgrade my
services,” says Isaacs.

“The Academy really opened my mind,” says Building strong client

Isaacs. “We worked in groups and this taught me
to listen to others in a group. Even though I have relationships is another
to oversee the work of my team, I have also learnt area where the Raymond
that listening to them and their ideas can help you
to achieve your goals together. And letting the Ackerman Academy
members of your team know they are important course has really
inspires them to do their best too.”
helped. The course was
But this is no surprise to the 23-year-old who thoroughly practical. It
loves team sports, especially rugby.
has helped me in my
Having the right staff, all of them motivated, dealings with clients
has earned Isaacs some important industry
endorsements – the big insurance companies because it taught me
as well as car rental giant Avis are amongst
the company’s major clients. In order to be
everything I needed to
successful, Isaacs believes that you have to build do, from what to wear
up a good reputation.
and how to present
“You have to do the best job and then build on myself to others to the
this, maintaining a level of trust with your clients
so that they know that they can rely on you and
more technical aspects of
that you won’t let them down,” he says. business administration.
“Building strong client relationships is another
area where the Raymond Ackerman Academy
course has really helped. The course was His last tip for starting and running a business
thoroughly practical. It has helped me in my successfully is this: You have to be hungry
dealings with clients because it taught me for work.
everything I needed to do, from what to wear
and how to present myself to others to the more “You have to work hard and you have to be
technical aspects of business administration. motivated to establish a good reputation and
Armed with these practical skills, and believing in keep that reputation.”

152
 CHAPTER 8
Recommendations for Policy and Practice
Given the inability of the formal and public
sector to absorb the growing number of job
seekers in South Africa, attention has focused
on entrepreneurship and its potential for
contributing to economic growth and job
creation. In many developing economies, small
businesses have been shown to contribute
substantially to job creation, economic growth
and more equal income distribution (Lewis,
2002). Dr Neil Rankin of Wits University (quoted
in the August 2009 sbp alert) estimated that in
South Africa, 73% of those in employment work
for firms with fewer than 50 employees while
45% of employed people work in firms with
fewer than 10 employees. By contrast, in the
two decades from 1985 – 2005, only 10% of
all new employment positions were produced
by large established firms (Finscope, Small
Business Survey Report).
In this context, South Africa’s persistently low
levels of entrepreneurial activity (TEA) relative
to other countries participating in the Global
Entrepreneurship Monitor surveys are cause
for concern. Since 2001, South Africa’s early-
stage entre­preneurial activity has been below
the median for all participating countries. GEM
re­­­­search has shown a consistent association be­
tween a country’s stage of economic develop­
ment and its level of entrepreneurial activity.
However, South Africa’s TEA rate is two to three
times lower than the entrepreneurial activity
rate that would be expected, given its per capita
income. In addition, South Africa’s TEA rate
remains significantly lower than the average for
all efficiency-driven economies as well as the
average for all middle to low income countries.
The GEM data indicates that South Africa lags
behind other developing countries in terms
of promoting the growth and sustainability of
small businesses. A disturbing trend is the low
prevalence rate of new and established firms.
In 2009, the average new firm prevalence rate
for all efficiency-driven countries was more than
double South Africa’s rate. The prevalence rates
for established business activity were even more
disturbing, with the average for all efficiency-
driven countries being almost six times higher
than South Africa’s rate. The economic implica­
tions of these findings paint a bleak picture
of the South African SMME sector’s current
potential to contribute meaningfully to job
creation and economic growth.
South Africa’s low levels of entrepreneurial
activity are the result of personal as well as
environmental factors. Improving the skills
base and fostering positive entrepreneurial
attitudes through the education system is
critical. However, without a more enabling
environment that encourages individuals to
see entrepreneurship as a financially viable
employment option, it is debatable whether
South Africa will expe­r i­­ence a significant
increase in entrepreneurial activity. A
major prerequisite for a thriving small-scale
enterprise sector is the existence of an enabling
environment, which includes political and
economic stability, relative security, market-
based incentives, and access to resources
needed to grow (African Renaissance 2003,
NEPAD International Trade Conference).
A strong entrepreneurial culture cannot develop
and flourish in areas with limited access to
resources, poor infrastructure, little or no
customer spend and no vibrant markets. In the
absence of an enabling environment in which
to utilise and develop their skills in practice,
people will be forced to migrate/ emigrate to a
more favourable environment, search for formal
employment within their current province, or
remain unemployed. Key to improving South
Africa’s entrepreneurial performance, then, is a
dual focus on improving the country’s human
capital through education and skills training,
and creating a more enabling environment
in order to dispel negative perceptions about
entrepreneurship as an employment option. A
more enabling environment is also necessary
to reduce the cost of running a business,
and therefore improve the sustainability of
enterprises in the SMME sector.
153
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE

Specific recommendations aimed at addres­ entrepre­n eurial environment are summarised

sing the weaknesses in the South African in Table 8.1.

Table 8.1: Recommendations for improving South Africa’s entrepreneurial capacity

Category Recommendations for entrepreneurial development in South Africa
Access to finance • Construct a comprehensive website listing all the institutions that
offer funding to SMMEs. The site should provide up to date contact
information, as well as details about the type of funding on offer and
the criteria for receiving funding.

• Set up a national mentorship fund, managed by competent and

experienced people with a proven track record in small business
support and development. Provision of finance for start-up businesses
must be coupled to ongoing mentorship, training and access to support
services. This is an essential step in promoting the sustainability of
small businesses, as many entrepreneurs in new businesses lack the
skills and experience required for business growth and survival.

• Highly efficient micro-finance structures, where lending institutions

are able to manage the risk of default and provide small loans to a
number of small-scale entrepreneurs (especially micro and entry-level
entrepreneurs) must be established.

• Many of the government agencies mandated with providing financial

support to the SMME sector have proved to be singularly unsuccessful.
Poorly managed, inefficient and controlled by political appointees
rather than by experienced professionals, these organisations have
done little to foster entrepreneurship. A thorough audit of these
organisations is necessary, followed by a revamping of their business
models and operational capacity. Government-linked funding
agencies should be either replaced by or partnered with successful
private organisations (such as Business Partners) to ensure that best-
practice models are replicated.
Government • Effective government policies with regard to dealing with rampant
policies petty and more aggravated forms of crime in society are crucial,
as relative security is an essential part of an enabling business
environment.

• Initiate selective government policies aimed at supporting high

innovation and high-growth entrepreneurial ventures, as these are
the entrepreneurs who will have the greatest impact on job creation.

• Liberalise the labour market, or introduce a two-tier labour market

with increased flexibility for smaller companies. As South Africa’s
restrictive employment laws are seen as one of the biggest regulatory
obstacles to business growth, they should be reviewed.

• The responses by the national experts with respect to the social

enterprise statements indicate that there is currently a lack of
confidence in the government’s ability to bring together entrepreneurs
and government entities in productive relationships. Creating a
coherent and nationally-aligned government vision for building
entrepreneurship which includes a better working relationship
between government, intervention agencies and target communities
is thus imperative.

• Introduce policies that reduce the cost of doing business. These

include: set up costs (e.g. administration costs such as licensing,
statutory requirements), telecommunications and BEE scorecard.

154
 CHAPTER 8: Recommendations for Policy and Practice

Category Recommendations for entrepreneurial development in South Africa

Government • Simplify business registration procedures, for example a single form of
policies maximum three pages for bank/ tax/ CIPRO. Provide online facilities
(cont.) (where possible) for forms, returns, and access to other entrepreneurs.

• Simplify tax regulations for start-up entrepreneurs.

• Government should aggressively incentivise entrepreneurship through

greater development of specialised economic zones; providing tax
breaks for businesses below certain revenue thresholds; and lowering
barriers to entry in certain industries.

• Refine the Preferential Procurement Act and institute better

performance management of the implementers of the Act.
Government • Government programmes need to be staffed by well-trained,
programmes experienced and committed professionals if they are to provide
tangible benefits to entrepreneurs. Currently a number of government
pro­g­r­am­­mes are run by political appointees rather than by professional
and experienced executives. Where nepotism also extends to the
hiring of staff, the efficiency of these programmes is considerably
compromised.

• Remuneration in government programmes should be based on actual

performance. For example, performance should be measured not by
the number of business plans that have been completed or funded,
but by the number of plans that translate into a business that is able
to operate for more than three months

• Government programmes and initiatives must effectively target their

markets, as research has shown that many entrepreneurs are unaware
of the programmes available.

• Government agencies tend to be concentrated in urban areas, and

particularly in Gauteng. As the need for these programmes is often
more critical in less developed provinces, government must ensure
that these provinces are not sidelined.

155
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE

Category Recommendations for entrepreneurial development in South Africa

Education and • Improve basic education, with special emphasis on numeracy and
training literacy. A good basic education has been shown to make individuals
more trainable, allowing for flexibility and productivity in the labour
market. A good educational foundation also enhances the time and
cost-effectiveness of training. Poorly educated individuals require more
training at a greater cost and often with fewer demonstrable results.

• Although entrepreneurship is meant to form part of the secondary

school curriculum, it is taught neither widely nor effectively enough – a
situation which must be addressed as entrepreneurial education and
training is one factor that has been shown to have a significant impact
on entrepreneurial attitudes and aspirations. This can be addressed
by improving the training in business skills offered at school level, and
establishing a wide-ranging apprenticeship system to provide artisan
skills, especially to young people.

• Increase investment in training programmes and educational

institutions in the fields of maths and science.

• It is important to include technology in the school curricula as well

as adult education programmes to ensure that the wider population
becomes more familiar with technology.

• Girls need to be encouraged to pursue scientific and technology

courses – at school and in tertiary studies. Early introduction to ICT
will alleviate the “fear of technology” which might inhibit their later use
of ICT.

• Provide up-to-date training programmes that focus on the

entrepreneurs’ needs, rather than outdated programmes that cater
predominantly for general managers.

• Enterprise support programmes must be properly and regularly

evaluated, and constantly improved.

• Entrepreneurial trainers and consultants must themselves be well-

trained and/or experienced in the specific area of expertise that they
offer, for example accounting, HR or logistics. They must be committed
to providing rigorous coaching as well as an honest evaluation of
entrepreneurs’ business ideas.

156
 CHAPTER 8: Recommendations for Policy and Practice

Category Recommendations for entrepreneurial development in South Africa

Transfer of • Provide incentives for high-growth entrepreneurial ventures, especially
research and in the technology sector.
development
• Science parks and incubators for high-tech and R&D orientated
start ups should be developed – perhaps through public-private
partnerships.

• Identify and benchmark successful entrepreneurship-orientated

programmes.

• ICT training institutions must employ specialist IT people to advise

businesses and provide focused training to ensure the effective use
of technology. Training interventions need to offer business owners
the support that they actually require. This could be basic computer
literacy, English literacy, basic business skills or more advanced
computer literacy.

• ICT development has viewed the SMME sector as a smaller version

of corporate clients and much of the software offered to this sector
has been too complex, too expensive or has not understood the
needs of the SMME market. Software providers need to tailor-
make programmes for the SMME market or, if they currently have
programmes aimed at the SMME market, they should review their
marketing and pricing strategy.

Commercial, • Create clusters/ incubators/ business hubs – including entrepreneurs

legal and as well as commercial and professional support structures – so
financial that start-ups can be assisted in a more protected and supportive
infrastructure environment. This is particularly important in rural and semi-rural
areas, where poor infrastructure (physical and commercial) is a major
barrier to small businesses.

• South Africa needs to develop a more effective micro-finance

infrastructure.

• Legal and accounting clinics should be set up to provide specialised

but affordable advice and services to small business owners.

Openness of • Provide incentives to promote partnerships between entrepreneurs

the domestic and established businesses, for example tax incentives for firms that
market do business with new entrepreneurs.

• The tendering process should be simplified and standardised across

all government departments.

• Rural areas have small, unreliable markets with high levels of

competition for the limited customer base. This makes it extremely
difficult for under-resourced entrepreneurs to break into and succeed
in these markets.

157
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE

Category Recommendations for entrepreneurial development in South Africa

Access to • Upgrade existing infrastructure in disadvantaged areas through
physical public-private partnerships as transport and communication facilities
infrastructure as well as reliable power are vital for business development and are
particularly problematic in rural areas.
• Government must prioritise the maintenance and development of
transport infrastructure: roads, railways and ports. South Africa’s
transport costs currently amount to 53% of overall logistic costs,
well above the global average of 39%. Inadequate maintenance of
transport networks is a key contributor to these higher costs.

• Liberalisation of the telecommunications sector to allow for inc­

reased competition is vital to assist in bringing down the cost of
telecommunication.
• Increased competition is also necessary to bring down the cost of
broadband connectivity, as the cost of broadband connectivity is
currently out of reach of many small businesses.

• Government organisations mandated with providing entrepreneurial-

orientated services must focus on providing satellite offices with
technological equipment (such as fax and internet) and supervision in
disadvantaged areas.
Social and • A societal ethos of self-sufficiency rather than state-dependency
cultural norms should be inculcated from primary school level.
• Entrepreneurial education in primary and secondary schools is
important to inculcate a positive attitude towards entrepreneurship as
a viable employment option. This is important as formal employment
is seen as the career path of choice while self-employment is often
seen merely as a “stop-gap”.
• Interventions aimed at increasing female participation in the SMME
sector are an important strategy for economic development in South
Africa as women are still under-represented in opportunity businesses
and show a lower interest in starting a business. The Business
Partners Women’s Fund is an important initiative in this regard. This
organisation has found women to be better business risks than men,
with a significantly lower rate of failure and an estimated 14 new
jobs are created every time they invest in a woman-owned business.
Government programmes should follow this lead to enable more
female entrepreneurs to take up meaningful roles in the business
community.
• The skewed burden of home and community health care for women
hampers women’s active participation in the economy. Government
must stop paying lip service to constitutional guarantees of equality
and provide practical assistance, for example child-care facilities.

158
 Peer Reviewers
The authors would sincerely like to thank
a number of leading experts in the field of
entrepreneurship, who have kindly given
their valuable time in reviewing this book
and providing most useful feedback, advice
and comments. We are grateful to them and
acknowledge their contribution to this work.
Dr Edwin Bbenkele
Dr Edwin Bbenkele is Professor in the
Department of Entrepreneurship at the
University of Johannesburg and is responsible
for designing training programmes for the
Centre for Small Business Development.
He is also the owner-manager of Nsana
Business Consulting. He was the CEO of
the Micro Enterprise Alliance in Gauteng.
Professor Bbenkele has had a distinguished
career in working with organisations such
as the European Union, SADC, the African
Development Bank, and the Universities of
Zambia, Stirling and KwaZulu-Natal. He
is considered to be a leading authority in
entrepreneurship in South Africa.
“Overall the concept of writing the book
is very good and it will be a great asset for
researchers who are looking for a longitudinal
view of entrepreneurship developments in
South Africa.”
Dr Gideon Maas
Gideon Maas is the Co-Director of the Institute
of Applied Entrepreneurship at Coventry
University, UK. Coventry University recently
received acknowledgement for their work in
entrepreneurship, being named as the Midlands
Entrepreneurial University of the year and being
highly commended for the same role on a
national level.
Gideon has broad international business and
academic experience. Before joining Coventry
University, he was the owner-manager of his
own consulting company which focused on
entrepreneurship and family businesses. Leading
up to this he was the first International Chair in
Entrepreneurship in South Africa. Dr Maas has
also worked in various other organisations, such
as the Stellenbosch University Business School in
South Africa and the First National Development
Corporation in Namibia. He was the principal
researcher and author of the 2006 and 2007
GEM reports for South Africa. On a macro
159
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE
level, he contributed to many national strategic
development initiatives in South Africa, such as
the Small Enterprise Development Agency of
which he was a board member. He is one of the
founders and a past president of the Academic
Entrepreneurship Society of Southern Africa
(AcES) and was the regional representative of FFI
(Family Firm Institute) in Southern Africa. He was
also an Associate Professor at the University of
Limerick in Ireland. He obtained his PhD from
Stellenbosch University.
“It is a comprehensive document and contains
an enormously rich source of data. It addresses
a wide spectrum of events which are all
related to the current state of entrepreneurship
in South Africa.”
Mr Ken Duncan
Mr Ken Duncan is CEO of the Swiss-South
African Co-operation Initiative (SSACI), a
youth development agency that since 2003 has
provided business development services to over
900 new or existing youth-owned enterprises.
SSACI also piloted, with GTZ, a model of micro-
enterprise development that was subsequently
adopted by the Department of Labour for nation-
wide implementation. Before establishing
160
SSACI, Ken was a consultant in education and
training, providing research and evaluation
services to international and local development
agencies, and to South African government
departments. He also has years of experience
in the educational NGO sector throughout
Southern Africa, including Botswana, Namibia,
Swaziland and Zambia. Ken has a Masters
degree from Rhodes University, specialising in
the evaluation of educational projects, and a
Higher Diploma in Education from the University
of the Witwatersrand.
Maria Minniti
Maria Minniti is Professor and Bobby B.
Lyle Chair in Entrepreneurship at the Cox
School of Business of Southern Methodist
University. Professor Minniti holds a PhD in
Economics from New York University. She
has published numerous articles on entre­
preneurship, economic growth and complexity
theory, as well as book chapters and research
monographs. Some of her articles have
appeared in Economics Letters, the Journal
of Economic Behaviour and Organization,
Journal of Business Venturing, Journal of Econo­
mic Psychology, Entrepreneurship Theory and
Practice, Small Business Economics Journal,
and Comparative Economics Studies. Professor
Minniti is field editor of economics for the
Journal of Business Venturing and associate
editor for the Small Business Economics Journal
and the International Small Business Journal.
She is currently working on the relationship
between institutions and entrepreneurship.
“This is an important book that fills a gap in
the literature and, hopefully, will pave the
road for others to follow. Every country would
benefit from, and should have, a book like
this. It makes an important contribution to our
understanding of entrepreneurship not only in
South Africa, but as a universal characteristic
of human action as well. In addition to
academics, policy makers and industry will
find this book very valuable.”
Michael Hay
Michael Hay is Professor of Management
Practice in Strategic and International
Management and Entrepreneurship at London
Business School. He was Deputy Dean and
Secretary of the School for five years until
December 2006 and Acting Dean of CIDA City
Campus in Johannesburg in 2007. CIDA is an
innovative institution which provides virtually free
undergraduate business education to historically
disadvantaged individuals. Professor Hay joined
the London Business School Faculty in 1987
and has held a variety of positions including:
Director of the Foundation of Entrepreneurial
Management; Associate Dean of the Sloan
Masters Programme; and Dean of Executive
Education. He previously spent ten years in
academic publishing, principally with Blackwell,
where he was Deputy Managing Director of
Blackwell Publishers, a founder and Chairman of
Blackwell-Polity and Chairman/Chief Executive
of Marston Book Services; and Director of The
Business Place in South Africa. He is co-founder
of the Global Entrepreneurship Monitor which,
starting with 10 countries in 1999, now examines
the nature and impact of entrepreneurial activity
in more than 50 countries around the world.
His books include: The Strategy Handbook, with
Peter Williamson; Investing for the Future: New
Firm Funding in Germany, Japan, the UK and
USA with Steven Abbott; and The Venture Capital
Handbook with Bill Bygrave and Jos Peeters. He
has worked as consultant for the United Nations
on welfare in Eastern Europe and co-authored,
with Professor Sir Alan Peacock, Social Policies
in the Transition to a Market Economy.
“This is an excellent piece of work in every
respect. More specifically it provides a
thorough and comprehensive review of nine
years of the GEM project in South Africa; it
summarises key results and findings – and
how these have changed over time – in an
authoritative manner and in so doing displays
a profound graph of the major issues; it sets
out a range of policy implication proposals
in a way that is compelling and thoroughly
anchored in empirical findings; finally it
makes a case for change in a way that is
unarguable.”
161
 TRACKING ENTREPRENEURSHIP IN SOUTH AFRICA: A GEM PERSPECTIVE

Rolf Sternberg
Rolf Sternberg is a full Professor for
Economic Geography at the University of
Hannover. Before joining the University of
Hannover he was a full Professor at the
Technical University of Munich and at the
University of Cologne. His main research
interests include the spatial consequences of
government policies (i.e. such as innovation
policy), the impacts of innovation networks
on regional development, new firm formation
processes and effects, and regional-sectoral
clusters and their economic impacts. Since
1998 he has been the leader of the German
team of the Global Entrepreneurship Monitor
(GEM). Sternberg is also an Associated Editor
of Small Business Economics.

162
 Acknowledgements
Our thanks to all of the authors and contributors to past GEM reports, with particular reference to
Amanda Driver, Carina Fischer, Mary-Lyn Foxcroft, John Orford, Marlese von Broembsen and Eric
Wood.

To our three sponsors – Swiss South Africa Co-operation Industry (SSACI), the Small Enterprise
Development Agency (SEDA) and Standard Bank – we say a big thank you for your financial support,
without which this research would not be possible.

We express our gratitude to the 36 national experts who so willingly gave of their time and shared
their insights into the state of entrepreneurship in South Africa.

To Nielsen South Africa, who conducted the adult population survey, thank you for an excellent job.

We extend our thanks to the reviewers who put in an enormous amount of time reviewing this
document.

The GEM project is dependent on the enormous efforts of the GEM global team at the London
Business School and Babson College. The South African team thanks them for their invaluable
contribution.

Most importantly, to the South African entrepreneurs without whom this work would have no
meaning, thank you for all you do.

163
 About the Authors
Dr Mike Herrington
Mike Herrington is the director of the UCT Centre for Innovation and Entrepreneurship at the
Graduate School of Business. He is a recognised entrepreneur, having started four businesses
– one in New Zealand and three in South Africa. He was responsible for starting the CIE and is
keenly interested in entrepreneurship and all levels of business creation. His leading activities are
in the areas of entrepreneurship, business planning, venture capital and the internationalisation
of business. Mike has been leader of the GEM South Africa team since 2001. In 2010, he was
appointed one of four country representatives on GEM’s eight-member international board.

Jacqui Kew
Jacqui Kew is a senior lecturer in the Accounting Department at the University of Cape Town. She
is also involved in executive education short courses at the Graduate School of Business where she
specialises in finance for non-financial managers in both corporate and small businesses. She has
been involved at the UCT Centre for Innovation and Entrepreneurship at the Graduate School of
Business on a consultancy-basis since 2003, where she has contributed to various GEM reports and
is active in the small business training programme.

Penny Kew
Penny Kew has an MSc in Comparative and International Education from Oxford University. She
has been involved in the area of education and training since 1997. Penny has been involved in
a number of the more recent GEM reports, and was principal researcher on both the 2008 and
2009 reports.

164
 Appendices
Appendix A

The UCT Centre For Innovation and Entrepreneurship

In 2001 the Graduate School of Business at the University of Cape Town established the UCT
Centre for Innovation and Entrepreneurship, with financial assistance from Liberty Life, the
World Bank Group and the Gatsby Charitable Foundation. The ambition was bold – to make
the Graduate School of Business Africa’s leading tertiary institution in entrepreneurship
teaching and research, and to become internationally recognised as an authority in this
field in developing economies. The Centre, built on initiatives started in the mid-1990s,
was organised around three distinct and mutually reinforcing sets of activities: teaching
and materials development, research and public policy, and business creation and growth.

The core focus of the Centre is on the delivery of quality entrepreneurship education at academic
and all other levels of society. The Graduate School of Business’s philosophy of entrepreneurship
education is that to be effective, it must be practical. Our students therefore have meaningful
interactions with entrepreneurs, are involved in actual entrepreneurial projects, work in multi-disci­
pli­n­ary project teams, and are evaluated by entrepreneurs and investors as well as by aca­d­e­mic
staff. The entrepreneurship courses delivered by the Centre are closely integrated with new venture
activity in the local business and investment communities. The intention is not to compete with
incubators or other business promotion projects, but to seek partnership with the most successful
of these for mutual benefit. The Centre’s core activity of ‘quality entrepreneurship education’ has
significantly enhanced its ability to establish such partnerships.

The Centre is involved both in high-value-added and high-potential new ventures, and in township
and other community-based enterprises. Since its establishment, the Centre has assisted over 100
township enterprises by providing practical business advice, access to finance and training, with the
objective of enabling them to become independent, sustainable businesses with greater potential
for expansion.

The Centre is currently involved in numerous other activities including:

• research that aims to develop a better understanding of the capacities and needs of all the
different categories of entrepreneurs in South Africa so that advi­sory services and finance can
be more precisely targeted.
• advising academics on the commer­cialisation of their intellectual property.
• offering coaching and mentoring services to entrepreneurs.
• assisting large companies in nurturing innovative and entrepreneurial behaviour in their
organisations.

The Centre is proud to be a participant in the international GEM project. We believe that the
research spearheaded by GEM is essential to the development of global entrepreneurial activity and
we are committed to that purpose in South Africa.

165
 Appendix B

List of figures
Figure 2.1: The GEM conceptual model
Figure 2.2: The revised GEM model
Figure 2.3: 12 pillars of competitiveness
Figure 2.4: The entrepreneurial process and GEM operational definitions
Figure 4.1: Early-stage entrepreneurial activity rates and per capita GDP, 2009
Figure 4.2: Prevalence rates of early-stage entrepreneurial activity in South Africa, 2002-2009
Figure 4.3: Start-up and new firm activity in South Africa, 2002-2009
Figure 4.4: Relative contribution of opportunity and necessity motivation to early-stage
entrepreneurial activity in South Africa, 2002-2009
Figure 4.5: High-growth expectation early-stage entrepreneurial activity
(HEA), 2004-2009
Figure 6.1: Prevalence of early-stage social entrepreneurship activity (SEA) by country
Figure 7.1: Relationship between finance sources and expected rates of return
Figure 7.2: Relationship between types of investors and risk profile
Figure 7.3: Connecting with angel investors
Figure 7.4: South African Micro-finance Apex Fund

List of tables
Table 1.1: Provincial distribution of SMMEs in the formal and informal sector
Table 3.1: Global Competitive Report comparisons for South Africa – 2002 versus 2008
Table 3.2: South African indices for 2008 (ranking out of 133 countries): poor performance
Table 3.3: South African indices for 2008 (ranking out of 133 countries): good performance
Table 3.4: Most problematic areas in doing business in South Africa, 2002 versus 2008
Table 3.5: Relative rankings from 2001 – 2006
Table 3.6: Early stage entrepreneurial rates (% TEA) across GEM countries
Table 3.7: Opportunity versus necessity entrepreneurial activity for efficiency-driven
economies
Table 3.8: Start-up, new firm and established business entrepreneurial activity (%)
for efficiency-driven economies
Table 3.9: Male and female entrepreneurial activity for efficiency-driven economies
Table 3.10: Involvement in early-stage entrepreneurial activity, by age
Table 3.11: Job creation potential by different population groups
Table 3.12: Opportunity-motivated new firm activity rates among young adults by highest
educational attainment
Table 3.13: Awareness and use of government small enterprise support
Table 3.14: Awareness and use of government enterprise support in 2007
Table 4.1: Prevalence rates (%) of entrepreneurial activity across GEM countries in 2009
Table 4.2: Entrepreneurial attitudes and perceptions in efficiency-driven economies, GEM 2009
Table 4.3: Opportunity and necessity-driven TEA rates across all GEM countries, 2009
Table 4.4: Entrepreneurs’ views of the business climate, 2009
Table 4.5: Female entrepreneurial perceptions, 2009
Table 4.6: Involvement in entrepreneurial activity, by gender
Table 4.7: Entrepreneurial attitude and perceptions, by gender

166
Table 4.8: Involvement in early-stage entrepreneurial activity, by age
Table 4.9: Involvement in early-stage entrepreneurial activity, by population group
Table 4.10: Stage of entrepreneurial activity, by population group
Table 4.11: Motivation for entrepreneurial activity, by population group
Table 4.12: Unemployment rate by population group, 4th quarter 2009
Table 4.13: Involvement in entrepreneurial activity, by sector
Table 4.14: Job-creation aspirations in early-stage entrepreneurial entities
Table 5.1: The GEM Entrepreneurial Framework Conditions
Table 5.2: Summary of experts’ assessment of the entrepreneurial environment
Table 5.3: Entrepreneurial Framework Conditions valued most positive (+)
and most negative (-), per GEM country 2009
Table 5.4: Key factors constraining entrepreneurship
Table 5.5: Entrepreneurial activity across selected African countries, 2009
Table 5.6: National experts’ recommendations to stimulate entrepreneurial activity
Table 6.1: Social entrepreneurial activity by firm phase and gender, GEM 2009
Table 6.2: Male to female SEA ratios by firm type
Table 6.3: Statements responded to by the national experts
Table 6.4: Distinguishing characteristics of formal and informal entrepreneurs
Table 6.5: Policy implications for formal and informal entrepreneurs
Table 7.1: Funding for different sized SMMEs
Table 7.2: Micro-funding available from SEF
Table 7.3: Equity versus debt financing
Table 8.1: Recommendations for improving South Africa’s entrepreneurial capacity

167
 Appendix C
National experts survey participants 2009

Allen-Payne Carol Management consultant to growing and established firms

Bhula Nandu General manager: Eskom
Brombacher Aarnout Director of closed corporation involved in training
(especially maths related)
Chetty Pria Director: law firm specialising in innovation and technology law
Chivaka Richard Senior lecturer in accounting;
researcher in SMME development
Cohen Tim Writer/ researcher on small business (eg ‘Business Day’)
Davison Suzette Director-owner:
Studio Sioux (architecture & project management)
Dookoo Denise Manager: SEDA Western Cape
Farr Anthony CEO: Allan Gray Orbis Foundation (NGO)
Fourie Julia CEO of Here Be Dragons (venture capital firm)
Goldstuck Arthur Managing director: Worldwideworx; SMME researcher
Gumbi Dumi Owner and director: Anamazing
Hartzenberg Trudi Director: Trade Law Centre of South Africa
Holdengarde Trish Owner: Business Intuitive
Kapelus Paul Director: Synergy Global Consulting
Kok Danie Director of research: Systems Applications Products SA
Long Keith Principal: Rhodes High School; subject advisor - economics
Lowe Heather Head: First National Bank small business finance division
Manuatona Shibishi Director: Business Leadership SA
Masinga Errol Coordinator: transformation (including enterprise development):
Alexander Forbes
Matthews Gwyneth Owner and director: Dax Data
Mazwai Thami Director: Small Business Development Centre, UJ
Mchunu Nontwenhle Owner/ founding director: Ezulwini Chocolat
Ngqobe Thandiwe Chief ops officer: Gauteng Enterprise Propeller
Orford John Director of Equity Investment Strategy, UBS South Africa
Overmeyer Tonia Manager: student leadership and development, UWC
Price Gavin Senior lecturer: Gordon Institute of Business Science
Schumann Katinka Executive in finance: IDC
Silenga Mthuzimele Senior manager: SARS research division (SME research)
Pieter
Siwisa Simi Director of economic policy, Business Unity SA
van Marken Anthony CEO of Vox Telecom
van Wyk Roche Director: Learn to Earn (NPO)
Watson Alexandra Professor: UCT Accounting Dept; SAICA representative
Wells Chris CEO of Transnet
Williams Ian Owner and director: Easycoms
Zille Helen Premier of Western Cape

168
 References
Acs, Z., Bosma, N. and Sternberg, R. (2008).
The Entrepreneurial Advantage of World Cities:
Evidence from GEM Data, SCALES-initiative
H200810. Zoetemeer: Netherlands Ministry of
Economic Affairs.
Bardasi, E., Mark Blackden, C. and Guzman,
J. (2007). Gender, Entrepreneurship and Co
petitiveness in Africa, Africa Competitiveness
Report 2007. Geneva, Switzerland: World
Economic Forum
Barendsen, L and Gardener, H (2004). Is the
Social Entrepreneur a New Type of Leader?
Leader to Leader, Fall 2004 p44 – 50
Blanke, J (2007). Assessing Africa’s Com­
petitive­­ness in a Global Context, The Global
Com­­petitiveness Report 2008 – 2009, World
Economic Forum, w w w.weforum.org/en/
initiatives/gcp/Global%20Competitiveness%20
Report/index.htm
Bosma, N., Acs, Z., Autio, E., Coduras, A. and
Levie, J. (2008). Global Entrepreneurship Moni­
tor 2008 Executive Report. London, UK: London
Business School, Santiago, Chile: Universidad
del Desarrollo and Babson Park, M.A.: Babson
College
Bosma, N., and Levie, J. (2009). Global Entre­
preneurship Monitor 2009 Global Report. San-
tiago, Chile: Universidad del Desarrollo, Bab-
son Park, M.A.: Babson College and Reykjavik,
Iceland: Reykjavik University
Bruno, A.V. & Tyebjee, T.T. (1985). The Entrepre­
neur’s Search for Capital, Journal of Business
Venturing, pp 61 – 74
Business wire (2007). Key Findings of the SME
survey 2007 in South Africa, www.reuters.com/
ar ticle/pressRelease/idUS72368+19- Aug-
2008+BW20080819
Chigunta, F., Schnurr, J., James-Wilson, D.,
Torres, V. (2005). Being “Real” about Youth En­
trepreneurship in Eastern and Southern Africa,
Implications for Adults, Institutions and Sector
Structures, SEED Working Paper, No 72, ILO,
Geneva
Cichello, P. (2005). Hindrances to Self-
employment Activity: Evidence from the 2000
Khayalitsha/Mitchell’s Plain Survey. CSIR
Working Paper, No. 131, Centre for Social
Science Research
Deakins, D. (1999). Entrepreneurship and small
firms. McGraw-Hill International (UK) Ltd. 2nd
Edition
Dees. J (2001). The Meaning of “Social
Entrepreneurship http://www.caseatduke.org/
documents/dees_sedef.pdf
Department of Trade and Industry (DTI) SAWEN
(2005). South African Women Entrepreneurs. A
burgeoning force in our economy – A special
repor t 20 05.ht tp://w w w.dti.gov.za/sawen/
SAWENrepor t2.pdf.
Department of Trade and Industry, (2008). An­
nual Review of Small Business in South Africa,
2006-2007: National Skills Research Agency
(NASRA), Jobworx.
Doing Business 2010: Comparing Regulations
in 183 economies (2009). World Bank, IFC and
Palgrave MacMillan
Driver, A., Wood, E., Herrington, M. and Segal,
N. (2001). Global Entrepreneurship Monitor:
2001 South African Executive Report. Graduate
school of Business, Cape Town
Dutta, S. and Mia, I. (2007). The Global Compe­
titiveness Report 2008 – 2009, World Economic
Forum, www.weforum.org/en/initiatives/gcp/
Global%20Competitiveness%20Report/index.
htm
Foxcroft, M., Wood, E., Kew, J., Herrington, M.
and Segal, N. (2002). Global Entrepreneurial
Monitor: 2002 South African Report. Graduate
School of Business, University of Cape Town
169
 Frances, N. (2008). The end of charity: time for
social enterprise. Crows Nest: Allen & Unwin.
Gullander, S & Napier, G. (2003) The Nordic
case, Stockholm School of Entrepreneurship.
Gullander, S. & Napier, G. (2003). The Nordic
case, Stockholm School of Entrepreneurship.
Global Competitive Report 2003 – 2004 &
2009 – 2010, World Economic Forum.
Harvard Business School (1981). Notes on the
Venture Capital Industry (1981). HBS Case 285-
096, Harvard Business School, 1982, pp 1.
Hausemann, R., Tyson, L.D. and Zahidi, S.
(2009). The Global Gender Gap Report 2009.
Geneva, Switzerland: World Economic Forum
Hazelhurst, E (2010). Forget about rand;
schooling key to growth, Cape Times Business
Report, 10 February 2010
Herrington, M., Maas, G., Maas, B., Overmeyer,
T. and Kew, J. (2007). A review of literature and
studies conducted on the youth in the Western
Cape. UCT Graduate School of Business. www.
keele.ac.uk/dept/so/youthchron/index.htm
Herrington, M., Kew, J., Overmeyer, T., Maas,
B. and Maas, G. (2008). Western Cape Status
of the Youth Report. Graduate School of
Business, University of Cape Town
Herrington, M., Kew, J. and Kew, P. (2008).
Global Entrepreneurship Monitor: 2008 South
African Report. Graduate School of Business,
University of Cape Town
Hitt, M., Ireland, R.D., Camp, S.M. and Sexton,
D. (2002). Strategic Entrepreneurship: Creating
a New Mindset. Cornwall: Blackwell Publishers.
International Trade Centre (ITC).(2004). Women
exporters contribute to development. http://
w w w.intracen.org /docman/ PRSR48 41.p df
Justo, R., Lepoutre, J., Terjesen, S., Bosma, N.
(2010). Global Entrepreneurship Monitor (GEM)
170
Social Entrepreneurship Study: Methodology
& Data, Working paper presented at the NYU
Stern Conference for Social Entrepreneurship
And GEM Conference, Santiago, Chile Version:
January 31, 2010
Kelly, T. and Biggs, P. (2007). Mobile Phones as
the Missing Link in Bridging the Digital Divide in
Africa, ATDF Journal Volume 4, Issue 1
KPMG. (2006). www.kpmg.co.za. Accessed 12
September 2006
Levie, J. and Autio, E. (2008). A Theoretical
Grounding and Test of the GEM Model, Small
Business Economics, 31 (3), 235 – 236
Lewis, J.D. (2002). Promoting Growth and
Employment in South Africa. Africa Region
Working Paper Series: Number 32. World Bank
Maas, G. and Herrington, M. (2006). Global
Entrepreneurship Monitor: 2006 South African
Executive Report. Graduate School of Business,
University of Cape Town
McKenzie, G., Turner, M., Herrington, M., &
Kew, J. (2003). Entrepreneur of the Year: A study
of successful South African business leaders,
Graduate School of Business, University of
Cape Town, unpublished report.
Mair, J. and Martı´, J. (2006). Social entre­
preneurship research: A source of explanation,
prediction, and delight. Available online at www.
sciencedirect.com Journal of World Business 41
(2006) 36 -44
Mia, I. and Dutta, S. (2007). Connecting the
World to the Networked Economy: A Progress
Report Based on the Findings of the Networked
Readiness Index 2006 – 2007, The Global
Information Technology Report, 2007 World
Economic Forum, http://www.insead.edu/v1/
gitr/wef/main/previous/chapters/GITR2006-
2007.pdf
Mpofu, B. (2009). New centres accelerate
testing of artisans to meet SA’s skills shortage,
Business Day, 9 March 2009
National Skills Research Agency, (2008).
Annual Review of Small Business in South
Africa. Pretoria: Department of Trade and
Industry.
NEPAD (2003). African Renaissance, NEPAD
International Trade Conference
Orford, J., Wood, E. Fischer, C., Herrington,
M. and Segal, N. (2003). Global Entre­
preneurship Monitor: 2003 South African
Executive Report. Graduate School of
Business, University of Cape Town
Orford, J., Wood, E. and Herrington, M.
(2004). Global Entrepreneurship Monitor:
2004 South African Executive Report.
Graduate School of Business, University of
Cape Town
Porter, M.E. and Schwab, K. (2008). The
Global Competitiveness Report 2008-2009.
Geneva, Switzerland: World Economic Forum
Rego, L. and Bhandary, A. (2006). New
Model, A Social Entrepreneur Changes the
Landscape, LIA, Volume 26, number 1,
March/April 2006
Reynolds, P., Bosma, N., Autio, E. and Hunt,
S. (2005). Global Entrepreneurship Monitor:
Data Collection Design and Implementation,
Small Business Economics, 24
Roberts, E.B. (1991). Entrepreneurs in High
Technology: Lessons from MIT & Beyond: New
York: Oxford University Press, 1991: pp 144
SBP Alert. (2009). Small business development
in South Africa: time to reassess. August 2009,
www.sbp.org.za
Schoof, U. (2006). Stimulating Youth Entre­
preneurship: Barriers and incentives to
enterprise start-ups by young people, SEED
Working Paper, No 76, ILO, Geneva
Schwab, K. and Sala-i-Martin, X. (2009). The
Global Competitiveness Report 2009-2010.
Geneva, Switzerland: World Economic Forum
Statistics South Africa. (2007). Labour Force
Survey Pretoria. March 2007. http://www.statssa.
gov.za/PublicationsHTML/P0210March2007/
html/P0210March2007.html
Statistics South Africa (2007). Community
survey 2007, (Revised Version). Statistical
release PO301. Pretoria. Statistics South
Africa
Statistics South Africa (2008). Mid-year
Population Estimates 2008. Statistical release
P0302. Pretoria: Statistics South Africa
Statistics South Africa (2009). Quarterly
Labour Force Survey: Quarter 4 2009.
Statistical release P0211. Pretoria: Statistics
South Africa
Sohl, J. & Sommer, B. (2000). Angel Investment
Activity: funding high-tech innovation. Cited in
Infometrics Ltd., New Zealand’s Angel Capital
Market: The supply side.
Stevenson, H.H., Roberts, M.J. & Grousbeck,
H.I. (1985). New Business Ventures & the
Entrepreneur: Homewood, IL: Richard D. Irwin.
Von Broemsen, M., Wood, E. and Herrington,
M. (2005). Global Entrepreneurship Monitor:
2005 South African Executive Report.
Graduate School of Business, University of
Cape Town
Weiner, A. & Rumiany, D. (2007). A New
Logic of Reducing the Global Digital Divide
in Sub-Saharan Africa: From Obstacles to
Opportunities, ATDF Journal, 4 (1)
Wetzel, W.H. Jnr. (1982). Informal Investors
– When and Where to Look, in Pratt’s Guide
to Venture Capital Sources, 6 th Edition ed.,
Stanley E. Pratt: Wellesley Hills, MA: Capital
Publishing, pp 22.
World Bank (2008). Youth and Employment
in Africa, The Problem, The Promise. http://
siteresources.wor ldbank.org/ I NTA FR I C A /
R e s o u r c e s /A D I _Yo u t h _ E m p l o y m e n t _
summary.pdf
171
172
View publication stats