RICHARD RAYNE: The entrepreneurial spirit is here, but where is the funding?

The rise of African entrepreneurship over the past decade has been crucial in helping unlock prosperity across the continent, creating jobs and lifting many out of poverty. Entrepreneurial hubs are popping up all over, from Kenya and Nigeria to Senegal and Rwanda.

In SA this trend is only now becoming clearer. Between 2019 and 2021 the new business ownership rate in SA almost doubled to 7.3% from 3.7%. According to the Global Entrepreneurship Monitor, the figures point to the market opportunity for entrepreneurship in the country since these businesses were able to survive the start-up phase and now have real potential to contribute to the economy. 

This boom also encouraged the Entrepreneurs’ Organisation (EO), a 17,000-strong community of business owners across the globe, to host its annual Global Leadership Conference (GLC) in Cape Town for the first time in April 2023 — convening more than 1,000 business leaders to spotlight the nascent entrepreneurial potential of this famous city. 

But while there is no shortage of ambition, determination and resilience among SA founders, many of the delegates echoed three important challenges that continue to stand in the way of SA entrepreneurship from flourishing. 

African entrepreneurs often struggle to secure sufficient funding, either from the government or the private sector. A survey conducted by EO’s SA chapter revealed that half of entrepreneurs said they needed more funding support to grow their businesses; more than a quarter said lack of funding was their biggest constraint. Just one in 10 said their businesses had ever received financial support from the government. 

Funding from the private sector is also scarce. A McKinsey report found that just 9% of SMEs have obtained funding from private sources, the majority of which went to businesses older than five years.

Formidable hurdles 

The situation is worsened by the prevailing economic downturn: as global inflation ramps up the Reserve Bank has had to increase interest rates to curtail and control inflation, making it more difficult for SMEs to borrow money or afford business utility costs. Load-shedding is now one of the most significant challenges to businesses. 

Coupled with cumbersome bureaucratic processes, red tape and regulations, aspiring entrepreneurs face formidable hurdles that stifling innovation and growth. But where most people see challenges, despair and negativity, it is often the resilient entrepreneur who sees a solution, taking up commercial opportunities where others are too conservative to tread. 

We can see the effects of this mindset in the economy already. SA has a burgeoning middle class. Over the years as the low informal economy started accumulating wealth, the trickle-down effect gave way for an increased market size of consumer ability to purchase and participate in the formal economy. 

Crucial to this growth are SMEs. McKinsey reported that this sector represents more than 98% of businesses, responsible for a quarter of job growth in the private sector and contributing to 39% of SA’s GDP. 

However, for this growth to continue growing policymakers and investors need to embrace the entrepreneurial mindset. Countless research has shown that SMEs can help lift Africa from its greatest ill: poverty. That is why EO SA is calling on policymakers to do three things for local entrepreneurs:

• Support small businesses and scalable start-ups, using tax incentives and easier access to financing, beyond SA major start-up “hubs”.
• Good infrastructure is imperative to success. Just as a bicycle is no use without a path, a computer is of no use without the internet. It is vital that we improve access to broadband and other technological infrastructure to support digital entrepreneurship across the country. 
• We need to focus on education and skills. Policymakers, government, private sector and international organisations need to invest in education and training programmes to help commercial and social entrepreneurs develop the skills they need to solve our greatest economic and social challenges.

To fully unlock the potential of this brewing market, governments, private sectors and international organisations need to work together. Investments in infrastructure, innovative financing mechanisms, streamlined regulatory processes and educational initiatives are all required to creating an environment that enables entrepreneurs to thrive. 

The opportunity for SA to prosper and elevate its economy is here — more so than ever. The question is whether this is the year we can make it happen.

• Rayne is EO Cape Town chapter chairman and CEO of iLearn.