ZWELINZIMA NDEVU: Companies and public entities can do more to boost entrepreneurs, study shows

There is a mismatch between what private companies and public organisations can do in entrepreneurial spaces, and what they are actually doing.

This is a key finding of a study released by Allan & Gill Gray Philanthropy SA in collaboration with the department of science & innovation, the UN Development Programme and the Allan Gray Centre for Africa Entrepreneurship.

The study explored the challenges local youth entrepreneurs are facing, and how technical and vocational training as well as private companies and public entities can help them to succeed in their businesses. The study aimed to improve entrepreneurial ecosystem data by mapping innovation entrepreneurship at training colleges.

In SA, 80% of small and medium-sized enterprises (SMEs) fail within the first five years, compared with the global average of 45%. According to a Global Entrepreneurship Monitor report, entrepreneurial activity has dropped to below prepandemic levels. It would therefore make sense to put our resources into growing SMEs to combat rising unemployment, which is at 33%.

This is not what is happening. The problem is not only a lack of funding infrastructure. While the authorities provide support to the entrepreneurial ecosystem, the distribution is not what it should be, with only 33% of government stakeholder capacity toward funding the entrepreneurial ecosystem.

About 11% of that capacity goes to policy support. This is an area that needs urgent attention considering that policy and red tape are already working against SMEs and the power to change this rests primarily in government’s hands. It is the area in which government can make the most difference.

Non-essential regulatory processes must be eliminated so that small businesses can thrive. The red tape within government itself that prevents the dissolution of these policies must be reconsidered too.

But the government is just one player that needs to step up — the private sector also needs to take responsibility for its role. In the same training institution ecosystem mapping report, it was found that private sector stakeholders’ resources are not being used optimally.

Just 17% of private stakeholder capacity went to funding SMEs. Private sector players — especially financial institutions — have an important role to play. But of all private sector stakeholders in the entrepreneurship training ecosystem only 15% are from the financial sector.

The financial sector possesses most potential funding for SMEs. Of SA’s R7-trillion GDP between 2015 and 2023, R1.1-trillion — about 14% — came from the financial sector, the most of any sector by almost R400bn.

According to the most recent auditor-general municipal audit, many municipalities are not functioning as they should. Mismanaged governmental resources and improper service delivery are leading to unfavourable business environments — to say nothing of the lower quality of life experienced by citizens of those municipalities.

Yet many SMEs depend on municipal services to run their operations as they need stable power and water supply and functioning state organs to issue licences and permits. Setting up and registering a business is such a bureaucratic nightmare that many people are unable to do it, meaning they are in effect being run informally.

While regulation is necessary, there are too many rules for small business owners, who face a mountain of compliance regulations, as well as the production of reports and licence applications and renewals.

Private-public partnerships are vital for economic growth. Supporting SMEs does more than give entrepreneurs the chance to reach their dreams: opportunities are created for further employment, GDP is enhanced and innovation promoted.

If the formal institutions involved in these partnerships play to their strengths more jobs will be created, and more entrepreneurs who have the means to provide innovative solutions to the challenges we all face.

An ecosystem is a living thing; it is up to us to give it the lifeline to grow and bear fruit.

• Ndevu lectures at the University of Stellenbosch and is chair of the board at the Allan Gray Centre for Africa Entrepreneurship.