gem-south-africa-2014-report-1431707163

2014
GEM SOUTH AFRICA
REPORT
South Africa: The crossroads – a goldmine or a time bomb?
Mike Herrington, Jacqui Kew
& Penny Kew

2 2015 GEM South African Report South Africa: The crossroads – a gold mine or a time bomb? 3
Contents
LIST OF FIGURES.......................................................................................................................................................................2
LIST OF TABLES..........................................................................................................................................................................3
EXECUTIVE SUMMARY..............................................................................................................................................................4
ACKNOWLEDGEMENTS.............................................................................................................................................................4
ABOUT THE AUTHORS................................................................................................................................................................6
THE UCT DEVELOPMENT UNIT FOR NEW ENTERPRISE (DUNE).............................................................................................6
CHAPTER 1: INTRODUCTION AND BACKGROUND...................................................................................................................8
1.1 The GEM conceptual framework........................................................................................................................................... 8
1.2 How GEM measures entrepreneurship..............................................................................................................................14
1.3 GEM methodology................................................................................................................................................................15
1.3.1 Adult Population Survey (APS)...............................................................................................................................15
1.3.2 National Experts Survey (NES)..............................................................................................................................16
CHAPTER 2: A SOUTH AFRICAN PERPECTIVE ON ENTREPRENEURSHIP.......................................................................... 18
2.1 Introduction..........................................................................................................................................................................18
2.2 The entrepreneurial pipeline...............................................................................................................................................20
2.2.1 Attitudes and potential entrepreneurs..................................................................................................................20
2.2.2 Entrepreneurial intentions.....................................................................................................................................21
2.2.3 Early-stage entrepreneurial activity......................................................................................................................22
2.2.4 Established businesses.........................................................................................................................................25
2.2.5 Business discontinuance.......................................................................................................................................28
2.3 Profile of entrepreneurs.......................................................................................................................................................28
2.3.1 Age distribution......................................................................................................................................................28
2.3.2 Gender and race differences.................................................................................................................................29
2.3.3 Education................................................................................................................................................................30
CHAPTER 3: SOUTH AFRICA’S ENTREPRENEURSHIP ECOSYSTEM.................................................................................... 32
3.1 An overview of South Africa’s business environment........................................................................................................33
3.2 The National Expert Survey.................................................................................................................................................33
3.2.1 Market dynamics....................................................................................................................................................34
3.2.2 Education................................................................................................................................................................34
3.2.3 Government initiatives...........................................................................................................................................35
CHAPTER 4: GOVERNMENT INITIATIVES............................................................................................................................... 38
4.1 Small Enterprise Development Agency (SEDA)..................................................................................................................38
4.2 Small Enterprise Finance Agency (SEFA)............................................................................................................................39
4.3 National Youth Development Agency (NYDA).....................................................................................................................39
4.4 Technology and Innovation Agency (TIA)............................................................................................................................39
4.5 National Empowerment Fund (NEF)...................................................................................................................................39
4.6 Other funders.......................................................................................................................................................................40
4.7 Survey of government initiatives.........................................................................................................................................40
CHAPTER 5: RECOMMENDATIONS FOR POLICY AND PRACTICE........................................................................................ 42
5.1 Education and training........................................................................................................................................................43
5.2 Government policies and regulations.................................................................................................................................44
5.3 Market openness.................................................................................................................................................................45
5.4 Government programmes................................................................................................................................................... 47
5.5 Entrepreneurial finance support......................................................................................................................................... 47
REFERENCES ......................................................................................................................................................................... 48
List of Figures
Figure 1.1: Geographical coverage of 2014 GEM survey cycle – green shaded countries ................................................... 9
Figure 1.2: Conventional model of national economic growth...............................................................................................10
Figure 1.3: Model of entrepreneurial processes affecting national economic growth ........................................................10
Figure 1.4: The GEM Conceptual Framework, used in GEM surveys up to 2014.................................................................11
Figure 1.5: The revised GEM Conceptual Framework.............................................................................................................12
Figure 1.6: The entrepreneurial process and GEM operational definitions..........................................................................14
Figure 2.1: Total early-stage entrepreneurial activity (TEA) in GEM economies in 2014, by phase of
economic development..........................................................................................................................................23
Figure 2.2: TEA rates and GDP per capita, 2014....................................................................................................................24
Figure 2.3: Correlation of perceived capability (skills) with the level of TEA, 2014..............................................................30
List of Tables
Table 1.1: GEM economies by geographic region and economic development level, 2014................................................ 9
Table 1.2: Social, cultural, political and economic context and economic development phases......................................13
Table 2.1: Unemployment rates in sub-Saharan Africa, 2014..............................................................................................19
Table 2.2: Perceptions of good opportunities in the adult population of South Africa, 2001–2014................................21
Table 2.3: Entrepreneurship attitudes and intentions in South Africa, 2003–2014..........................................................22
Table 2.4: Prevalence rates (%) of entrepreneurial activity amongst the adult population in
South Africa, 2001–2014......................................................................................................................................22
Table 2.5: South Africa’s relative rankings, GEM 2002–2014.............................................................................................24
Table 2.6: Opportunity- and necessity-driven TEA rates amongst the adult population of
South Africa, 2001–2014......................................................................................................................................25
Table 2.7: Phases of entrepreneurial activity in GEM economies in 2014, by geographical region (% of
population aged 18–64 years)..............................................................................................................................26
Table 2.8: Reasons for business exit in South Africa, 2006–2014 ....................................................................................28
Table 2.9: TEA by age group in South Africa, 2001–2014....................................................................................................29
Table 2.10: Entrepreneurial activity in South Africa by gender, 2001–2014........................................................................29
Table 2.11: Motivation for early-stage entrepreneurial activity by race group, 2005–2014................................................30
Table 2.12: Distribution of educational levels for TEA in South Africa, 2001–2014.............................................................31
Table 3.1: Global Competitiveness Report – 2013/14 vs. 2014/15...................................................................................33
Table 3.2: EFCs influencing the pool of potential entrepreneurs in South Africa, 2005, 2010, 2013 and 2014.............34
Table 3.3: Average expert ratings on education and training for entrepreneurship in South Africa,
2010, 2013 and 2014...........................................................................................................................................35
Table 3.4: EFCs influencing the early-stage and established business entrepreneurs in South Africa,
2005, 2010, 2013 and 2014................................................................................................................................36
Table 3.5: Average expert rating on government policies for entrepreneurship in South Africa,
2010, 2013 and 2014 ..........................................................................................................................................36
Table 3.6: Starting a business in South Africa – procedures and days............................................................................... 37
Table 3.7: Accessing electricity in South Africa – procedures and days.............................................................................. 37
Table 4.1: Awareness and usage of government initiatives, 2014.......................................................................................40
Table 4.2: Assessment of local municipality for the Western Cape, 2014 ......................................................................... 41
Although GEM data were used in the preparation of this report, their interpretation and use are the sole responsibiltiy of
the authors.
All rights of this publication are reserved and therefore cannot be reproduced in its totality, its part, recorded or transmitted
by any information retrieval system in any way, by any means mechancial, photochemical, electronic, magnetis, electro-
optical, digital, photcopying or otherwise, without the prior permission in writing by the authors.

Executive Summary Executive Summary
Acknowledgements
The authors wish to express their gratitude to the
following contributors and partners, without whom this
project and report would not have been possible:
The Western Cape Department of Economic
Development and Tourism (DEDAT), for their
generous financial support towards conducting the
research for this report. A special acknowledgement
to John Peters and Sharief Davids for their
time, effort and commitment to supporting and
contributing to this initiative.
The International Development Research Centre of
Canada (IDRC). Thanks to Martha Melesse for all
her help and encouragement.
The national experts who carved space in their
busy schedules to grant us the benefit of their
insights and reflections. We appreciate your input
and guidance.
Penny Kew for editing the report.
The GERA data team – Yana Litovsky, Jonathan
Carmona and Alicia Coduras – for their guidance,
assistance and prompt response to all queries.
Those that provided additional research,
commentary, moral and practical support to all
the authors.
Nielsen South Africa, who conducted the Adult
Population Survey (APS).
Rothko International for the design and layout of
the report.
The entrepreneurs, within whom so much hope is
invested, as well as those who nurture, support and
educate them.
Executive Summary
South Africa’s rate of entrepreneurial activity is very
low for a developing nation – a mere quarter of
that seen in other sub-Saharan African countries.
Un- and underemployment is high in South Africa
(around 40%); despite this, the number of people
starting businesses due to having no other option
for work (necessity entrepreneurship) is low.
Entrepreneurial activity in South Africa, although very low, has
increased marginally over the last 10 years. However, in 2014 the early-
entrepreneurial activity rate dropped by a staggering 34%. There has been
an increase in women’s entrepreneurship, primarily due to government
support, but the perception of opportunities to start a business and
confidence in one’s own abilities to do so, remains low compared to other
sub-Saharan African countries.
The level of business discontinuance remains high compared to business
start-ups and exceeds the established business rate, resulting in a net loss
of small business activity and subsequent job losses. Like elsewhere in
Africa, many of the businesses cite lack of finance and poor profitability as
the main reason for shutting up shop.
7.0% of the adult population in South Africa
are engaged in entrepreneurship, while 2.7%
already own/manage an established business.
The typical South African entrepreneur is male, between the ages of 25–44
years of age, lives in an urban area, is involved in the retail and wholesale
sector and has a secondary or tertiary level of education.
Enablers and Constraints
A good infrastructure and banking systems are the two biggest enablers
of entrepreneurship in South Africa. Major constraints are an inadequately
educated workforce, inefficient government bureaucracy, high levels of
crime and onerous labour laws.
35.5% of adults in South Africa
see good opportunities to start a
business; 25.4% of these would be
prevented from doing so by fear
of failure.
Initiatives Supporting Entrepreneurship
There are very few government initiatives that contribute
towards improving entrepreneurship. The most successful
ones are supported by private companies, such as Anglo
American’s Zimele programme and the South African
Breweries KickStart initiative.
Trends Over Time
Entrepreneurial activity in South Africa, although very low,
increased marginally year on year over the last decade. In
2014, however, this trend was severely reversed by a drop
of almost 34% from 2013 to 2014.
In South Africa, for every 10 adult
males engaged in entrepreneurship
there are 8 females.
Challenges for the Future
The main challenge is to provide jobs and/or opportunities
for the youth, where the estimated unemployment level is
in excess of 60%. This can be assisted through education;
however, the level and quality of education in South Africa
is one of the worst in the world. The level of maths and
science education in the country, as assessed by the Global
Competitiveness Report (2014/2015), puts South Africa at
#144 of 144 countries.
Regulatory requirements make it very difficult for
people to start businesses; this is further exacerbated
by onerous labour laws and the low efficiency of the
labour force. Corruption, starting at the highest levels of
government, remains a major challenge, together with
high levels of crime.
Seventy one percent of entrepreneurs in South Africa start
businesses to pursue an opportunity and increase their
income or independence; 28% do so because they have no
other option for work.

About the AuthorsAbout the Authors
About The Authors
Dr Mike Herrington
Mike Herrington, the Executive Director of the Global
Entrepreneurship Research Association (GERA), is currently
based at the Faculty of Commerce, University of Cape Town,
South Africa.
Mike was involved in establishing and developing of a
number of Southern African companies before he moved to
New Zealand, where he started his own cosmetic company
which he later sold.
He returned to South Africa in 1989 and started a ladies’
hosiery company, which he and a partner built up successfully
to one employing several thousand people and dominating
over 85% of the South African market. They eventually sold
the business out to the American based company Sara-Lee
Corporation, after which Mike remained with the company
for several years before “retiring” in 1999. He was asked to
join the UCT Graduate School of Business in 2001 where he
started the Centre for Innovation and Entrepreneurship.
Mike obtained an MBA from University of Cape Town and
a PhD from London. He is involved in a number of SMME
initiatives and has done research on SMMEs in South Africa
and sub-Saharan Africa, as well as in other developing
economies such as South America.
Professor Jacqui Kew
JacquiKewisanAssociateProfessorattheUniversityof Cape
Town’s Department of Accounting. She has been involved
with GEM for more than 11 years, where she contributed
her passion and expertise in business training, academic
and commercial research and projects. She is equally
comfortable in classes of executive education, accounting
undergraduates and small business owners. Currently,
Jacqui is involved in an exciting project developing e-media
learning support for financial management concepts. She
draws energy from nature, particularly her early morning
paddling off the Atlantic seaboard.
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 and author on the 2008,
2009 and 2010 reports.
The UCT Development Unit for New Enterprise
(DUNE)
The UCT Development Unit for New Enterprise (DUNE) is
located within the Faculty of Commerce at the University
of Cape Town. The unit’s strategic purpose is to drive the
developmentanddeliveryofinnovativeresearch,leadership,
postgraduate training and social responsiveness. The focus
is on the areas of entrepreneurship, social entrepreneurship
and entrepreneurial leadership.
To fulfil its purpose, DUNE has three key objectives:
DUNE’s intention is to act as an impetus and catalyst for
designing, developing and delivering projects focused
on promoting research and training at the University of
Cape Town. DUNE will also be active in sourcing funding
for such projects.
DUNE seeks to also act as a support and network
centre within UCT for postgraduate students, student
organisations, academic staff and donors who require
supportinthedevelopmentofentrepreneurshipresearch.
DUNE seeks to create a space for dynamic dialogue
and debate on the role that entrepreneurship and
entrepreneurial activity should play in helping South
Africa overcome its social and economic challenges.
DUNE is in the process of developing a Master’s Programme
in Technology- based Entrepreneurship. This programme will
be available to students with mixed academic backgrounds,
as well as those with enough prior learning to qualify for
the master’s degree, once approved. The key feature of this
programme will be that from the outset, participants will
be required to set up and run their own technology-based
businesses. The academic and small business funding
components of the programme will be designed to ensure
complete practical support to students as they develop
their businesses.

chapter 1
(an all-time record number), comprising approximately
73% of the world’s population and 90% of the world’s
total GDP. Participating economies in the 2014 GEM cycle
are shown in Table 1.1. Since 2008 (Bosma et al, 2009),
GEM has followed the World Economic Forum’s typology of
countries, based on Porter’s (Porter et al, 2002) definitions
of economic development levels: factor-driven, efficiency-
driven and innovation-driven economies.
The economies participating in the 2014 GEM cycle are
shown in Figure 1.1 on page 9.
1.1 The GEM conceptual framework
Since its inception, the GEM survey was conceptualised to
explore the interdependency between entrepreneurship
and economic development. During the last 16 years,
this conceptual framework and the basic definitions have
evolved gradually without compromising the comparability
of the collected information, but bringing more clarity to
assumed relationships. This process was supported by the
work of a number of researchers who, using GEM data,
contributed to building an entrepreneurship paradigm
(Alvarez et al., 2014, Bosma, 2013, Levie and Autio, 2008,
Reynolds et al, 2015).
Introduction and background
INTRODUCTION
and background
Academics and policy makers agree that entrepreneurs,
and the new businesses they establish, play a critical role in
the development and well-being of their societies. As such,
there is increased appreciation for and acknowledgement of
the role played by new and small businesses in an economy.
GEM contributes to this recognition with longitudinal studies
and comprehensive analyses of entrepreneurial attitudes
and activity across the globe. Since its inception in 1997 by
scholars at Babson College and London Business School,
GEM has developed into one of the world’s leading research
consortia concerned with improving our understanding of
the relationships between entrepreneurship and national
development.
In the sixteen years since its inception, GEM has measured
entrepreneurship in over 100 countries, covering all
geographic regions and all economic levels. It has gained
widespread recognition as the most informative and
authoritative longitudinal study of entrepreneurship in the
world. In 2014, 73 economies participated in the GEM study
Table 1.1: GEM economies by geographic region and economic development level, 2014
Factor-driven Economies Efficiency-driven Economies Innovation-driven Economies
Africa
Angola1
, Botswana1
, Burkina
Faso, Cameroon, Uganda South Africa
Asia Oceania
India, Iran1
, Kuwait1
,
Philippines1
, Vietnam
China, Indonesia, Kazakhstan2
,
Malaysia2
, Thailand
Australia, Japan, Singapore,
Taiwan, Qatar
Latin America
Caribbean Bolivia1
Argentina2
, Barbados2
, Belize,
Brazil2
, Chile2
, Colombia, Costa
Rica2
, Ecuador, El Salvador,
Guatemala, Jamaica, Mexico2
,
Panama2
, Peru, Suriname2
,
Uruguay2
Puerto Rico, Trinidad and Tobago
European Union
Croatia2
, Hungary2
, Lithuania2
,
Poland2
, Romania
Austria, Belgium, Denmark,
Estonia, Finland, France,
Germany, Greece, Ireland, Italy,
Luxembourg, Netherlands,
Portugal, Slovenia, Slovakia,
Spain, Sweden, United Kingdom
Non-European
Union
Bosnia and Herzegovina,
Georgia, Kosovo, Russian
Federation2
, Turkey2
Norway, Switzerland
North America Canada, United States
1. In transition to efficiency-driven economies
2. In transition to innovation-driven economies
Figure 1.1: Geographical coverage of 2014 GEM survey cycle – blue shaded countries
Please provide a chapter summary

The starting definition for entrepreneurship still remains
valid, being:
“any attempt at new business or new venture creation,
such as self-employment, a new business organisation,
or the expansion of an existing business, by an individual,
a team of individuals, or an established business”
(Reynolds, P. et al, 1999, p. 3).
The three questions which originally opened the way to the
GEM survey (Reynolds, P. et al, 1999, p. 3) were formulated
as follows:
Does the level of entrepreneurial activity vary between
countries, and if so, to what extent?
Does the level of entrepreneurial activity affect a
country’s rate of economic growth and prosperity?
What makes a country entrepreneurial and what factors
influence entrepreneurial activity?
In order to answer these questions, GEM departed from
the conventional approach of thinking about national
economic growth. This led to the development of a new
conceptual framework, which has been through a series
of adjustments since its inception in 1999.
The GEM conceptual framework, as identified in 1999
(Figure 1.3), in contrast to the conventional model of
national economic growth (Figure 1.2), depicted the basic
assumption that national economic growth is the result of
the personal capabilities of individuals, wherever they are
located (regardless of the size of businesses or if they are
self-employed), to identify and seize opportunities. This
process takes place in interaction with the environment
(social, cultural and political) in which these individuals
are located.
This starting framework (Figure 1.2) subsequently
incorporated the findings and insights derived from
numerous GEM surveys and years of GEM research,
evolving into the GEM Conceptual Framework as presented
in Figure 1.4.
The most recent revision of the GEM conceptual framework
entailed opening the “black box” entitled “Entrepreneurship
Profile” (as presented in Figure 1.4). At the beginning of
conducting GEM surveys, the implicit assumption of mutual
relationships between attitudes, aspirations and activities
was built into the conceptual framework, but without
spelling out the nature of these relationships.
In the revised GEM conceptual framework (depicted in
Figure 1.5) this “black box” has been opened to allow for
testing of the characteristics of the assumed relationships
between social values, personal attributes and various
forms of entrepreneurial activity. This work was carried out
by members of the GEM Research and Innovation Advisory
Committee (RIAC).
Source: GEM Global 2012 Report
Basic requirements
Institutions
Infrastructure
Macroeconomic stability
Health and primary education
Efficiency enhancers
Higher education and training
Goods market efficiency
Labour market efficiency
Financial market sophistication
Technological readiness
Market size
Innovation and entrepreneurship
Entrepreneurial finance
Government policies
Government entrepreneurship
programmes
Entrepreneurship education
RD transfer
Commercial, legal infrastructure for
entrepreneurship
Internal market openness
Physical infrastructure for
entrepreneurship
Cultural and social norms
From other
available
sources
Social
Economic
Development
(Jobs,
Innovation,
Social value)
Social, cultural,
political context
From GEM
National Expert
Surveys
Attitudes:
Perceived opportunities and
capabilities; fear of failure;
status of entrepreneurship
Entrepreneurship Profile
Established
firms (Employee
Entrepreneurship
Activity)
Activity:
Opportunity/necessity driven,
early stage; inclusiveness;
industry; exits
Aspirations:
Growth, innovation
international orientation
social value creation
From GEM 2012
Adult
Population
Surveys (APS)
From GEM Adult
Population
Surveys (APS)
Figure 1.4: The GEM Conceptual Framework, used in GEM surveys up to 2014
Figure 1.2: Conventional model of national economic growth
Source: Reynolds, P. D., M. Hay, S.M. Camp, Global Entrepreneurship Monitor, 1999 Executive Report, p. 9
Figure 1.3: Model of entrepreneurial processes affecting national economic growth
Source: Reynolds, P. D., M. Hay, S.M. Camp, Global Entrepreneurship Monitor, 1999 Executive Report, p. 10
chapter 1 Introduction and background
Major Established Firms
(Primary Economy)
General National
Framework Conditions
Micro, Small and
Medium Firms
(Secondary Economy)Social, Cultural,
Political Context
National Economic Growth
(GDP, Jobs)
Entrepreneurial
Opportunities
Business
Dynamics
Social, Cultural,
Political Context
Entrepreneurial
Framework Conditions
Entrepreneurial Capacity
National Economic Growth
(GDP, Jobs)

In all the conceptual frameworks, the basic assumption
has remained unchanged – entrepreneurial activity is
considered an output of the interaction of an individual’s
perception of an opportunity and capacity (motivation
and skills) to act upon this opportunity and the distinct
conditions of the environment in which the individual is
located. The GEM survey of entrepreneurship (based on
individuals) complements other major business creation
surveys by providing unique information on individuals
(attributes, values, activities) and their interaction with the
environment in practising entrepreneurial behaviour (pro-
activeness, innovativeness and responsible choices).
It is clear, therefore, that GEM continues to focus on
contributing to global economic development through
surveying/researching entrepreneurship, which helps to
improve research-based education and research-based
formulationofpublicpoliciesinthefieldofentrepreneurship.
In order to achieve this, GEM has three key objectives:
To determine the extent to which entrepreneurial activity
influences economic growth within individual economies;
To identify factors which encourage and/or hinder
entrepreneurial activity (especially the relationships
between national entrepreneurship conditions, social
values, personal attributes and entrepreneurial activity);
and
To guide the formulation of effective and targeted
policies aimed at enhancing entrepreneurial capacity
within individual countries.
Over the years, GEM surveys have confirmed that the level
of entrepreneurial activity varies among countries at a fairly
constant rate. A crucial point confirmed by GEM research is
that it takes time and consistency in policy interventions in
order to enhance and develop the factors which contribute
to entrepreneurial activity. Surveys also confirmed that
entrepreneurial activity, in different forms (nascent, start-
up, intrapreneurship), is positively correlated with economic
growth, but that this relationship differs according to phases
of economic development (Acs and Amorós, 2008; Van Stel
et al., 2005; Wennekers et al., 2010).
GEM’s role as one of the world’s leading research consortia
concerned with improving the understanding and the
relationships between entrepreneurship and national
development is confirmed by recent policy interventions
around the world. These are focused on components of the
The components of the revised GEM Conceptual Frame-
work are:
Social, cultural, political and
economic context
As in the previous GEM model, this is defined according
to the twelve pillars of competitiveness derived from
the World Economic Forum’s Global Competitiveness
Index, and the nine components of GEM’s
Entrepreneurial Framework Conditions (see Table
1.2). These will affect countries differently, depending
on the stage of their economic development, 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 most important in an efficiency-
driven economy.
It is important to note that all components of the environ-
ment in which women and men act entrepreneurially (or
cannot act proactively and innovatively) are mutually
dependent. This dependency demands a holistic approach
not only in research but also in designing appropriate
policies for building a supportive environment where
entrepreneurial behaviour can flourish.
Social values towards entrepreneurship
This includes aspects such as the extent to which society
valuesentrepreneurshipasagoodcareerchoice;whether
entrepreneurs have high societal status; and the extent to
which media attention to entrepreneurship is contributing
to the development of a positive entrepreneurial culture.
Individual attributes
This includes different demographic factors (such
as gender, age, geographic location); psychological
factors (including perceived capabilities, perceived
opportunities, fear of failure); and motivational
aspects (necessity versus opportunity based ventures,
improvement-driven ventures).
Entrepreneurial activity
This is defined according to the phases of the life
cycle of entrepreneurial ventures (nascent, new
business, established business, discontinuation);
according to the type of activity (high growth, innovation,
internationalisation); and sector of activity (Total Early-
stage Entrepreneurial Activity – TEA, Social Entrepreneurial
Activity – SEA, Employee Entrepreneurial Activity – EEA).
Figure 1.5: The revised GEM Conceptual Framework
Table 1.2: Social, cultural, political and economic context and economic development phases
From other available sources
From GEM National Expert Surveys
(NES)
Economic development phases National Framework Conditions,
based on World Economic Forum
pillars for profiling economic
development phases
Entrepreneurial Framework
Conditions
Basic requirements – key to
resource-driven economies
Institutions
Infrastructure
Macroeconomic stability
Health and primary education
Efficiency enhancers –
key to efficiency-driven economies
Higher education and training
Goods market efficiency
Labor market efficiency
Financial market sophistication
Technological readiness
Market size
Innovation and sophistication factors –
key for innovation-driven economies
Business sophistication
Innovation
Entrepreneurial finance
Government policy
Government entrepreneurship
programmes
RD transfer
Internal market openness
Physical infrastructure for
entrepreneurship
Commercial and legal infrastructure
for entrepreneurship
Cultural and social norms
Social Values Towards
Entrepreneurship
Individual Attributes
(psychological,
demographic, motivation)
Entrepreneurial Output
(new jobs, new
value-added)
Outcome
(socio-economic
development)
Social, Cultural,
Political Context
NationalFrameworkConditions
Entrepreneurial
FrameworkConditions
Basic Requirements
Efficiency Enhancers
Innovation and Business
Sophistication
Entrepreneurial Activity
By phase of organisational life
cycle
Nascent, new, established,
discontinuation
Types of Activity
High growth, innovative,
internationalisation
Sectors of Activity
TEA, SEA, EEA
+
–
+
–
+
–
+
–
+
–
+
–

GEM conceptual framework: environment (entrepreneurial
framework conditions), individual capacity for identifying
and exploiting opportunities, and society’s capacity to
develop an entrepreneurial culture. A recent report on
entrepreneurial ambition and innovation (WEF-GEM, 2015)
highlights the cases of Colombia and Chile, economies that
have put in place several public and private initiatives to
enhance their entrepreneurial ecosystems (Drexler and
Amorós, 2015).
1.2 How GEM measures entrepreneurship
GEM measures individual participation across multiple
phases of the entrepreneurial process, providing insights
into the level of engagement in each stage. This is
important because societies may have varying levels of
participation at different points in this process. However,
a healthy entrepreneurial society needs people active in
all phases. For example, in order to have start-ups in a
society, there must be potential entrepreneurs. Later in the
process, people that have started businesses must have
the ability and the support to enable them to sustain their
businesses into maturity. Figure 1.6 presents an overview
of the entrepreneurial process and the GEM operational
definitions.
GEM’s multi-phase measures of entrepreneurship are given
below:
Potential entrepreneurs: Those who see opportunities in
their environments, have the capabilities to start businesses
and are undeterred by fear of failure.
Intentional entrepreneurs: Those who intend to start a
business in the future (in the next three years).
Nascent entrepreneurs: Those who have taken steps
to start a new business, but have not yet paid salaries or
wages for more than three months.
New entrepreneurs: Those who are running new
businesses that have been in operation between 3 and
42 months.
Established business owners: Those who are running a
mature business, in operation for more than 42 months.
Discontinued entrepreneurs: Those who, for whatever
reason, have exited from running a business in the
past year.
GEM’s individual-level focus enables a more comprehensive
account of business activity than firm-level measures
of formally-registered businesses. In other words, GEM
captures both informal and formal activity. This is important
because in many societies, the majority of entrepreneurs
operate in the informal sphere. In addition, GEM’s
emphasis on individuals provides an insight into who these
entrepreneurs are: for example, their demographic profiles,
their motivations for starting ventures, and the ambitions
they have for their businesses.
GEM also assesses broader societal attitudes about
entrepreneurship, which can indicate the extent to
which people are engaged in or willing to participate in
entrepreneurial activity, and the level of societal support for
their efforts. The GEM database allows for the exploration
of individual or business characteristics, as well as the
causes and consequences of new business creation.
A primary measure of entrepreneurship used by GEM is the
Total Early-Stage Entrepreneurial Activity (TEA) rate. TEA
indicates the prevalence of individuals engaged in nascent
entrepreneurship and new firm ownership in the adult (18
–64 years) population. As such, it captures the level of
dynamic early-stage entrepreneurial activity in a country.
Every person engaged in any behaviour related to new
business creation, no matter how modest, contributes
to the national level of entrepreneurship. However, it is
important to recognise that entrepreneurs can differ in their
profiles and impact. For this reason, GEM provides a range
of indicators that describe the unique, multifaceted pattern
exhibited in each society. It is therefore important to consider
not just the number of entrepreneurs in an economy, but
other aspects such as the level of employment they create,
their growth ambitions, and the extent to which groups such
as youth and women are participating in entrepreneurial
activity.
1.3 GEM methodology
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:
1.3.1 Adult Population Survey (APS)
The key entrepreneurship indicators are measured in
the Adult Population Survey (APS). Academic teams in
each participating economy administer and oversee
this survey, which is conducted using a random
representative sample of at least 2 000 adults
between the ages of 18–64 years. The surveys are
conducted at the same time every year (between May
and July) using a standardised questionnaire provided
by the GEM Global Data Team. The questionnaire is
translated into local languages, and back-translated
for a validity check.
In 2014, Nielsen was retained as the accredited vendor
to conduct the APS in South Africa. The research
included conducting 2 700 face-to-face interviews
with a random selection of the adult population in
South Africa between the ages of 18–64 years in
both rural and urban areas, covering all races and
gender. Interviews were conducted in the homes of
respondents using a structured questionnaire, in their
preferred language.
A probability sample of 3 300 households were selected
using Nielsen’s computerised household register (close
to 6 million actual addresses in urban areas) as well as
maps for rural sampling.
The sample was stratified by race, and within race, by
community size within region. From the 15–99 sampled
covering 3 300 households, an effective sample of
adults between the ages of 18–99 – a minimum yield
of n=2 700 is expected in the final APS sub-sample.
An additional sample of n=660 urban households was
selected, using the same methodology, to cover the
selected districts in the Western Cape and ensure a
minimum analysable base in each of the 5 areas and an
overall Western Cape sample of n=1000.
Figure 1.6: The entrepreneurial process and GEM operational definitions
Source: GEM Global Report 2014
Potential
Entrepreneur:
Opportunities,
Knowledge
and Skills
Nascent
Entrepreneur:
Involved in Setting
Up a Business
Owner-Manager
of a New
Business (up to
3.5 years old)
Owner-Manager
of an Established
Business (more
than 3.5 years old)
Total Early-Stage Entrepreneurship Activity (TEA)
Early-Stage Entrepreneurship Profile
Conception Firm Birth Persistence
Discontinuation of
Business
Individual attributes
• Gender
• Age
• Motivation (opportunity, necessity)
Industry
• Sector
Impact
• Business Growth
• Innovation
• Internationalisation

The individual countries only gain access to the data once
the raw data has been analysed by experts at London
Business School for quality assurance, checking and
uniform statistical calculations. As the GEM research design
harmonises the data, it is possible to conduct reliable cross
national and intra country comparisons over time.
1.3.2 National Experts Survey (NES)
The National Expert Survey (NES) provides
information on the local environment faced by start-
up entrepreneurs. Information is gathered about the
9 Entrepreneurial Framework Conditions: financing
for entrepreneurs, government policies, governmental
programmes, entrepreneurial education and training,
research and development transfer, commercial and
professional infrastructure, internal market openness,
physical and services infrastructure and social and
cultural norms. These 9 framework conditions are
detailed below. GEM guidelines suggest that experts
can be identified from the sources listed.
Financing for entrepreneurs: availability of financial
resources, equity and debt for new and growing firms,
including grants and subsidies.
Sources:
Banks and building societies
Venture capital associations
Business angels associations
Informal investors
Entrepreneurs
Government agencies that provide funds for
entrepreneurs
Government policies: extent to which government
policies, such as taxes or regulations, are either size-
neutral or encourage new and growing firms
Sources:
Policy makers
Ministries
Other relevant charges (secretaries, deputies)
Public agencies
Consultants
Entrepreneurs
Analysts
Government programmes: The presence and quality of
direct programmes to assist new and growing firms at
all levels of government (national, regional, municipal)
Sources:
Policy makers
Incubators
Local development offices
Commerce chambers
Business associations
Trade unions
Public agencies
Entrepreneurial education and training: The extent to which
training in creating or managing new, small or growing
business entities is incorporated within the education and
training system at all levels – primary and secondary school
and post-school entrepreneurship education and training.
Sources:
Schools
Vocational schools
Colleges
Universities
Business schools
Professors
RD transfer: The extent to which national research and
development will lead to new commercial opportunities
and whether or not these are available for new, small
and growing firms.
Sources:
Technology and science parks
Centres for research
Universities
Incubators
Accelerators
Researchers
Inventors
Commercial and professional Infrastructure: The
presence of commercial, accounting and other legal
services and institutions that allow or promote the
emergence of small, new and growing business entities.
Sources:
Consultants, advisors, managers
Lawyers
Accounting
Entrepreneurs
Incubators
Commerce chambers
Internal market openness: 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.
Sources:
Market analysts
Consultants, advisors
Brokers
Researchers
Specialist professors
Specialist journalists
Physical and services infrastructure: Ease of access to
available physical resources – communication, utilities,
transportation, land or space – at a price that does not
discriminate against new, small or growing firms.
Sources:
Water companies
Electricity companies
Phone companies
Real estate for business
Public offices in charge of roads, transportation and
communications
Entrepreneurs
Social and cultural norms: The extent to which existing
social and cultural norms encourage, or do not discourage
individualactionsthatmightleadtonewwaysofconducting
business or economic activities which might, in turn, lead to
greater dispersion in personal wealth and income.
Sources:
Sociologists
Psychologists
Social researchers
Women’s institutes and associations
Young entrepreneurs’ associations
Policymakers
Specialist journalists
GEM provides a number of criteria which must be met
when selecting experts, in order to construct a balanced
and representative sample.
At least four experts from each of the entrepreneurial
framework condition categories must be interviewed,
making a minimum total of 36 experts per country.
A minimum of 25% must be entrepreneurs or business
people, and 50% must be professionals.
Additional aspects such as geographical distribution,
gender, involvement in the public versus private sector,
and the level of experience should also be taken into
account when balancing the sample.
NES data is collected by interviewing experts identified by
the local team. GEM researchers are encouraged to source
information from the following, when identifying possible
experts to survey:
Social networks
Phone directories
Professional directories
Personal contacts
Professional relationships
Governmental agencies
Local agencies
Chambers of commerce
Research institutes
Consulting firms
Internet
Interviewswereofferedinaface-to-face,telephonicorelectronic
format. Experts were chosen for their depth of experience,
seniority within organisations, areas of specialisation and
affiliation.Insomeinstances,theheadofaninstitutionreferred
us to individuals they considered best positioned to provide the
insights we sought. Thirty eight percent of the respondents are
engaged in full-time entrepreneurial ventures, whilst a number
of others indicated that they were involved in small business in
addition to their primary job.

chapter 2
South Africa’s level of early-stage
entrepreneurial activity has declined
by 34% from 10,6% in 2013, to 7,0%
in 2014.
This imperative is particularly important in the South African
context. Despite the economic downturn that affected
advanced economies in recent years, the sub-Saharan
African region, like many emerging economies, benefited
from rapid economic growth. Most of the sub-Saharan
economies continued registering impressive growth rates of
close to 5% in 2013—with rising projections for the next two
years—below only emerging and developing Asia. However,
the African Economic Outlook 2014 notes that South Africa
lags behind the rest of the region. Growth in South Africa in
2013 was estimated at a mere 1.9%, rising by one percent
over the next two years.
Statistics in the Poverty Trends Report reveal that 10.2
million people in South Africa live below the breadline.
In addition, the country’s levels of inequality are among
the highest in the world with the GINI coefficient for
South Africa (2011) at 0.65, based upon expenditure.
The richest 20% of the population account for over 61%
of consumption while the poorest 20% account for only
A South African perspective
on entrepreneurship
4.5%. Trends reveal that there is a slight overall decrease
in poverty which could be attributed to the combination
of the growing social safety network, marginal income
growth, above average inflation wages increases, an
expansion of credit and a relatively low rate of inflation.
Although a good social welfare network is important,
it could well contribute to the low levels of early-stage
entrepreneurship in the country. In addition, merely
alleviating poverty is not enough. It must be reduced and
this is a long-term dilemma that faces policy makers.
One of South Africa’s most pernicious problems is its
high-level of unemployment and underemployment. South
Africa has the highest level of unemployment in the sub-
Saharan Africa region (Table 2.1), 3.3 times higher than
the regional average.
Official unemployment rates are often understated as
they do not take into account discouraged work seekers.
In South Africa, unemployment levels can be as high as
45% (depending on the method of measurement). In
addition, official unemployment figures often fail to
take into account the more significant proportion of
the underemployed population, (i.e. earning very low
wages), stuck in vulnerable employment or classified as
the working poor. These individuals are forced to take
whatever work opportunities present themselves, most of
which are not sustainable nor are they viable routes out of
poverty. A particularly disturbing aspect of the employment
challenge in South Africa is that over 65% of the youth
are unemployed or under-employed – a situation that has
been aptly described as a “ticking time bomb”.
The corporate sector fails to create jobs, and although
the government increased its levels of staffing by almost
200 000 people over the last few years, it is clear that South
Africa can no longer depend solely on large organisations
or government as job creators. The emphasis has now
shifted towards small and medium enterprises for job
creation. South Africans must move away from the concept
of seeking employment to one of creating employment for
oneself and others.
Entrepreneurship is widely considered to be an important
mechanism or driver of sustainable economic growth
through job creation, innovation and its welfare effect.
Hence enterprise development and entrepreneurship must
be seen as one of the key areas that can unlock growth
potential in South Africa in order to address the real
concerns of poverty and inequality. With the introduction
of the new Ministry of Small Business Development, under
the direction of Lindiwe Zulu, it seemed that government
was finally acknowledging the critical importance of SMME
development. Lindiwe Zulu’s aspirations regarding her
portfolio are clearly summarised in the following statement:
“We see small businesses and co-operatives as critical
to create an economy that benefits all. It is through
this intervention that we will be able to defeat the triple
challenges of poverty, unemployment and inequality. It is
this partnership that holds the key to unlock our country’s
economic potential, thus affording us a golden opportunity
to launch a sustained onslaught on poverty, unemployment,
inequality and underdevelopment. Indeed, all of us must
accept that we carry joint responsibility to re-distribute the
wealth of our nation.”
These are bold and inspiring words – and we need to see
if anything comes from this. One wonders whether her
ministry has the capacity, experience and will to achieve
the mammoth task of stimulating South Africa’s small
business economy. R. Chance of the Democratic Alliance
seems to share these concerns. He has stated that the
new department is facing capacity issues and should,
wherever possible, seek out partnerships with the private
sector. In addition, he believes that it is imperative that the
Minister sets out a strategy which is business friendly – not
necessarily just big business friendly but enterprise friendly.
In 2014, a record number of 73 economies registered for
the GEM cycle. However, survey results from Kuwait, Latvia
and Turkey were not included in the first GEM Global Report
as their APS data was not available at the time of going to
print. These countries will be included in a later PDF version
of the 2014 Global Report. The participating economies,
categorised by geographical region and economic
development levels (factor-driven, efficiency-driven and
innovation-driven), are shown in Table 1.1. It should be
A SOUTH AFRICAN
perspective on
entrepreneurship
2.1 Introduction
The US financial crisis of 2007/2008, considered by many
leading economists to be the worst economic crisis since
the Great Depression of the 1930s, was followed by a
significant global downturn (2008–2012). The Global
Competitiveness Report 2014–2015 notes that although
the global economy seems to be finally leaving behind the
worst and longest-lasting financial and economic crisis
of the last 80 years, this resurgence is moving at a less
decisive pace than it has after previous downturns. It
remains imperative for policy makers, business and civil
society leaders to work together, in order to identify and
strengthen the forces that drive future economic growth.
In particular, governments are urged to focus on reforms
that help to create enabling environments that foster
innovation, facilitate more productive economies and
critically, open up new and better job opportunities for all
segments of the population.
Table 2.1: Unemployment rates in sub-Saharan
Africa, 2014
Country Total unemployment rate
Angola 8.4
Botswana 18.4
Ghana 4.5
Malawi 7.6
Namibia 17.7
Nigeria 7.5
South Africa 25.3
Uganda 3.9
Zambia 13.3
Average SSA 7.6
Source: International Labour Organisation (http://www.ilo.org/global/
research/global-reports/global-employment-trends/2014)

noted that South Africa is the only efficiency-driven economy
in sub-Saharan Africa, with all the remaining participating
African countries being classified as factor-driven.
2.2 The entrepreneurial pipeline
The GEM model recognises entrepreneurial attitudes,
activity and aspirations as dynamic interactive components
of national entrepreneurial environments. Entrepreneurial
activitydoesnottakeplaceinavacuum,andentrepreneurial
attitudes and perceptions (both societal and individual) play
an important part in creating an entrepreneurial culture.
GEM sees entrepreneurial activity as a continuous
process rather than as individual events. As such, the
Adult Population Survey (APS) is designed to allow for the
measurement and assessment of individual participation
across the range of phases comprising entrepreneurial
activity: potential entrepreneurship, entrepreneurial
intentions, nascent and new business activity, progression
into established business ownership, and the reasons for
business discontinuance. This process can be viewed as a
pipeline, where people participating in each phase are the
source of those potentially advancing to the next phase.
In this report, the authors have decided to look at South
Africa’s entrepreneurial behaviour over several years of
GEM surveys, with a particular focus on the changes that
have occurred in the last 12 months so that the current
entrepreneurial landscape can be defined and understood.
This will allow for trends in South African entrepreneurial
activity to be highlighted, as well as assist policy makers
to make more informed decisions about how to increase
entrepreneurship and enhance SMME development within
the country.
2.2.1 Attitudes and potential entrepreneurs
Two main factors influence whether a person is likely to
even consider starting a business, namely:
Perceived opportunities which reflect the percentage
of individuals who believe there is occasion to start
a venture in the next six months in their immediate
environment because good opportunities do exist,
and
Perceived capabilities which reflect the percentage of
individuals who believe that they have the required
skills and experience to start a new venture.
Another factor which must be taken into account in the fear
of failure expressed as a percentage of people who do not
want to start a business because of the fear of failure. Fear
of failure can be influenced by intrinsic personality traits, as
well as by societal norms and regulations.
GEM considers those who perceive good opportunities
for starting a business, as well as believe they have the
required skills, as the potential entrepreneurs in a society. It
is important to note that, at this stage of the entrepreneurial
pipeline, they have not yet decided whether they will
pursue the opportunity or not. Table 2.2 shows that South
Africa’s pool of potential entrepreneurs has remained
relatively constant over the past five years. South Africa’s
scores for both perceived opportunities and perceived
capabilities are only half the average for the sub-Saharan
African region. GEM studies have shown that individuals in
factor-driven economies tend to have higher perceptions
that there are good opportunities for entrepreneurs. This
tends to decline with greater development levels. South
Africa is the only efficiency-driven economy in sub-Saharan
Africa, but given South Africa’s chronically high levels of
both un- and underemployment, this does not explain the
magnitude of the discrepancy. South Africa’s scores are
also below the averages for the efficiency-driven economies
that participated in GEM 2014 (37,0% for perceived
opportunities and 37,7% for perceived capabilities).
2.2.2 Entrepreneurial intentions
Potential entrepreneurs see good opportunities for starting
a business and believe that they have the necessary skills,
knowledge and experience to start a business. However,
perceiving a good opportunity and having the skills to
pursue it will not necessarily lead to the intent to start a
business. Individuals will assess the opportunity costs,
and risks and rewards, of starting a business versus
other employment preferences and options, if these are
available. In addition, the environment in which potential,
intentional and active entrepreneurs exist needs to be
sufficiently enabling and supportive.
Intentional entrepreneurs, the next stage in the pipeline,
express their intention of starting a business. GEM defines
entrepreneurial intention as the percentage of the 18–64
year old population (individuals already engaged in any
stage of entrepreneurial activity excluded) who intend to
start a business within the next three years. This stage
is important in the entrepreneurial process as a strong
association exists between entrepreneurial intention and
actual entrepreneurial behaviour. Societal attitudes –
whether entrepreneurship is seen as a good career choice,
whether high status is given to successful entrepreneurs
and whether there is a lot of media attention given to
entrepreneurship – can have an important influence on
entrepreneurial intent.
The 2014 GEM Global Report shows that entrepreneurial
intentions tend to be the highest among factor-driven
economies and lowest among innovation-driven economies,
which confirms the already recognised pattern that starting
a business is more prevalent where other options to provide
income for living are limited.
Table 2.3 shows that entrepreneurial intentions in South
Africa have dropped by 23% (from 15.4% to 11.8%) when
compared to 2013. The three indicators reflecting attitudes
towards entrepreneurship (good career choice, high status
and media attention) have also dropped – of particular
concern is the score for good career choice, which is the
lowest since 2009. Entrepreneurial intentions in South
Africa are significantly lower than for the rest of sub-
Saharan Africa – only a fifth of the regional average. South
Africa also performed poorly compared to other efficiency-
driven economies in the GEM 2014 survey – the average
for efficiency-driven economies was 22,8%, around double
South Africa’s score.
Entrepreneurial activity is the third phase of the
entrepreneurial pipeline, and dependent on a healthy
pool of potential and intentional entrepreneurs. Although
South Africa’s scores for societal attitudes towards
entrepreneurship have dropped, they remain similar to the
averages for sub-Saharan Africa, as well as higher than the
averages for all efficiency-driven economies in GEM 2014.
South Africa’s fear of failure rate is also in line with both
the sub-Saharan Africa and efficiency-driven averages. The
major discrepancy is in the area of entrepreneurial intention.
If policy makers and service providers are to be successful
in their efforts to stimulate and support new generations of
chapter 2
The state of entrepreneurship in
South Africa, 2001 to 2013
Potential Entrepreneurs 2001 2005 2009 2013 2014 Ave SSA**
Perceived good opportunities 19.7* 27.3 35.4 37.8 37.0 73.3
Perceived capabilities 30.4 35.2 35.5 42.7 37.7 77.4
Fear of failure 26 25.5 29.5 27.2 25.5 23.9
Table 2.2: Perceptions of good opportunities in the adult population of South Africa, 2001–2014
*read as 19.7% of the adult population in 2001 perceived there were good opportunities to start a business
** SSA=sub-Saharan Africa

entrepreneurs, they will need to identify and reduce factors
which inhibit entrepreneurial intentions in this country. It is
clear that in South Africa, even if the expected returns from
entrepreneurship are considerably higher than the best
alternative, the perceived risks involved may be too high
for an individual who is thinking about starting a business.
A variety of national characteristics could contribute to
this risk-assessment, for example, “red tape” which could
present unfavourable administrative burdens or high costs
to those thinking about starting a business; access to
resources and technical assistance; levels of corruption and
crime; the attractiveness of the market; and the competitive
environment.
2.2.3 Early-stage entrepreneurial activity
Entrepreneurial activities in this report are presented by
using the organisational life-cycle approach (nascent and new
businesses, established businesses and discontinuation).
Table 2.4 presents the entrepreneurial activity prevalence
rates in South Africa, along the phases of the life-cycle of a
venture, for the period of the country’s involvement in GEM.
The central indicator of GEM is the Total Early-stage
Entrepreneurial Activity (TEA) rate, which measures the
percentage of the adult population (18–64 years) that
are in the process of starting or who have just started a
business. This indicator measures individuals who are
participating in either of the two initial processes of the
entrepreneurial process:
Nascent entrepreneurs – those who have committed
resources to starting a business, but have not paid
salaries or wages for more than three months, and
New business owners – those who have moved beyond
the nascent stage and have paid salaries and wages for
more than three months but less than 42 months.
Measuring the two types of entrepreneurs is important as
it provides the level of early-stage activity that will hopefully
be transformed into established businesses – i.e. mature
businesses, in operation for more than 42 months.
The rates of all levels of early-stage entrepreneurial activity
have dropped significantly compared to 2013. TEA has
decreased by 34% (from 10.6% in 2013 to 7.0% in 2014)
and the gap between South Africa and other SSA countries
has widened. It appears that entrepreneurship in South
Africa is regressing when compared to its counterparts in
the rest of Africa.
chapter 2
Figure 2.1: Total early-stage entrepreneurial activity (TEA) in GEM economies in 2014, by phase of economic development
Table 2.3: Entrepreneurship attitudes and intentions in South Africa, 2003-2014
2003 2004 2005 2006 2008 2009 2010 2011 2012 2013 2014
Ave
SSA
Entrepreneurial
intentions 12.2* 15.6 10.7 9.3 16.9 13.3 19.6 17.6 14.0 15.4 11.8 58.0
Good career choice 48.0 59.3 55.2 60.9 64.6 63.7 77,5 72.7 74.1 74.0 69.6 71.5
High status
to successful
entrepreneurs 48.0 59.1 56.0 59.3 62.2 64.0 77.6 72.1 74.0 74.7 72.9 77.6
Media attention for
entrepreneurship 47.5 59.3 54.4 56.8 69.2 63.9 78.6 73.5 72.9 78.4 72.6 72.9
*Read as 12.2% of South African adults in 2003 who have entrepreneurial intentions.
2001 2005 2009 2013 2014 Ave SSA
Nascent entrepreneurial rate 5.3* 3.6 3.6 6.6 3.9 14.1
New business ownership rate 1.4 1.7 2.5 4.1 3.2 13.0
TEA 6.5 5.2 5.9 10.6 7.0 26.0
Established business ownership rate - 1.3 1.4 2.9 2.7 13.2
Discontinuance of businesses - 2.9 3.5 3.9 3.9 14.0
Read as : 5.3% of the adult population in South Africa in 2001 were engaged in nascent entrepreneurship
Table 2.4: Prevalence rates (%) of entrepreneurial activity amongst the adult population in South Africa, 2001–2014
A comparison of South Africa’s TEA rate with the TEA rates
of other economies participating in GEM 2014 (Figure 2.1)
reinforces this bleak prognosis. South Africa has one of the
lowest TEA rates among the efficiency-driven economies
– the average for the efficiency-driven economies is 14.0,
double South Africa’s TEA rate.
Over the years GEM has shown that TEA rates tend to be high
in those countries with a low GDP per capita. As the GDP per
capita increases, the levels of early-stage entrepreneurial
activity decreases as economies tend to become less reliant
on small enterprise creation to provide employment. Figure
2.2 plots GDP per capita against the TEA rates for 2014.
PercentageTEAinadultpopulation(18–64years)
Factor-driven
economies Efficiency-driven economies Innovative-driven economies
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
India
Iran
Angola
Bolivia
Uganda
Suriname
Russia
SouthAfrica
Georgia
Croatia
Hungary
CostaRica
Barbados
Indonesia
China
Panama
Colombia
Jamaica
Guatamala
Chile
Ecuador
Italy
France
Denmark
Finland
Sweden
Luxembourg
Taiwan
Estonia
Portugal
UnitedKingdom
Singapore
Australia
TrinidadTobago

chapter 2
Figure 2.2: TEA rates and GDP per capita, 2014
Table 2.5: South Africa’s relative rankings, GEM 2002–2014
Year SA’s TEA ranking SA’s TEA rate Median Number of positions above/ below median
2002 20th
out of 37 countries 6.3 19 1 below
2003 22nd
2004 20th
2005 25th
2006 30th
2008 23rd
2009 35th
2010 27th
out of 59 countries 8.9 30 3 above
2011 29th
2012 22nd
out of 69 countries 7.3 35 13 above
2013 35th
out 67 countries 10.6 34 1 below
2014 53rd
It is clear that South Africa’s position (designated ZA) is
substantially below the line of best fit. This line of best fit
shows that South Africa should have a TEA rate in the order
of 20% (almost three times South Africa’s actual rate of
7%) – a level at which the high rate of unemployment would
decrease substantially.
Table 2.5 shows South Africa’s performance in terms of
relative position – i.e. how many positions above or below
the median for the global GEM sample South Africa ranks –
for the years 2002–2014. Again, it is clear that the country’s
overall ranking has dropped significantly below the median
for all other GEM countries, reversing the positive trend
shown between 2010–2013.
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.
Necessity based early-stage entrepreneurial activity:
This is defined as the percentage of those involved in early-
stage entrepreneurial activity that claim to be driven by
necessity (having no better choice for work) as opposed
to opportunity. This is also described as survivalist-driven
motivation.
Opportunity based early-stage entrepreneurial activity:
This is the percentage of those involved in early-stage
entrepreneurialactivitydrivenpurelyorpartlybyopportunity,
as opposed to finding no other option for work. This includes
taking advantage of a business opportunity or having a job
but seeking a better opportunity.
GEM has shown that businesses started by opportunity-
driven entrepreneurs are much more likely to survive and
employ people than those started by necessity-driven
entrepreneurs. One would therefore expect economies
with higher developmental levels to have a high ratio of
opportunity entrepreneurs to necessity entrepreneurs.
However, in developing countries the levels of necessity-
Table 2.6: Opportunity- and necessity-driven TEA rates amongst the adult population of South Africa, 2001 -2014
2001 2005 2010 2013 2014 Ave SSA
Necessity-driven (% of TEA) 18,5 39,5 36 30,3 28,2 33,7
Opportunity-driven (% of TEA) 64,7 57,0 60,7 68,6 71,3 64,0
Ration of Necessity vs. opportunity 0,3 0,7 0,6 0,4 0,4 0,5
Read as : 18.15% of early-stage entrepreneurs in South Africa in 2001 were motivated by necessity
driven entrepreneurship tend to be high unless there
is some form of “security blanket” in the form of social
benefits, pensions, child support etc. Table 2.6 shows
an encouraging trend in South Africa, in that the ratio of
opportunity-driven TEA continues to increase and that of
necessity-driven TEA to decrease. This is unusual as one
would expect to see necessity-driven businesses increase,
given the high rates of unemployment in South Africa.
2.2.4 Established businesses
The level of established businesses is important in
any country as these businesses have moved beyond
the nascent and new business phases and are able
to contribute more to the economy in the form of
providing employment and introducing new products and
processes. Table 2.4 shows that although there has been
a sharp decline in South Africa’s TEA rate since 2013,
the established business level has remained relatively
constant. However, the established business rate is
disturbingly low, compared to that of other sub-Saharan
African countries. It is also significantly lower than the
average for efficiency-driven economies – which at 8.5%
is more than three times South Africa’s rate of 2.7%. Of
particular concern is that South Africa has the fourth
lowest established business rate of all the economies that
participated in GEM 2014 – only Kosovo, Costa Rica and
Puerto Rico have lower rates (Table 2.7).
The economic implications of these findings are certainly
worrying. South Africa’s persistently low established
business prevalence rate paints 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.
PercentageTEAinadultpopulation(18–64years)
CM
UG
EW
SO
CL
TH
PE
EF AO
GT
SW MX
PA
UY
AR
KZ
TT
LTSX
PT
EE
ZA
SR
UP
SS
UK
CA AU
ML
AT
TE SW
NOSE
SE
ES
JP
US
SG
EW
GDP Per Capita (PPP)
AO Angola
AR Argentina
AU Australia
AT Austria
BB Barbados
BE Belgium
BS Belize
BO Bolivia
y = -6.107In(x) + 73.542
R2
= 0,3742
BA Bosnia and
Herzegovina
BW Botswana
BR Brazil
BF Burkina Faso
CM Cameroon
CA Canada
CL Chile
CN China
CO Colombia
CR Costa Rica
HR Croatia
DK Denmark
EC Ecuador
SV Al Salvador
EE Estonia
FI Finland
FR France
GE Georgia
DE Germany
GR Greece
GT Guatemala
HU Hungary
IN India
ID Indonesia
IR Iran
IE Ireland
IT Italy
JM Jamaica
JP Japan
KZ Kazakstan
LT Lithuania
MY Malaysia
MX Mexico
NL Netherlands
NO Norway
PA Panama
PE Peru
PH Phillipines
PL Poland
PT Portugal
RO Romania
RU Russia
SG Singapore
SK Slovakia
SI Slovenia
ZA South Africa
SE Spain
SR Suriname
SE Sweden
SW Switzerland
TW Taiwan
TH Thailand
TT Trinidad
Tobago
UG Uganda
UK United Kingdom
UY Uruguay
VN Vietnam

European
Union
Austria 5.8 3.1 8.7 9.9 2.7
Belgium 2.9 2.5 5.4 3.5 2.3
Croatia 6.0 2.0 8.0 3.6 3.8
Denmark 3.1 2.5 5.5 5.1 2.2
Estonia 6.3 3.5 9.4 5.7 2.0
Finland 3.4 2.3 5.6 6.6 2.3
France 3.7 1.7 5.3 2.9 1.7
Germany 3.1 2.3 5.3 5.2 1.7
Greece 4.6 3.4 7.9 12.8 2.8
Hungary 5.6 3.9 9.3 7.9 3.1
Ireland 4.4 2.5 6.5 9.9 1.9
Italy 3.2 1.3 4.4 4.3 2.1
Lithuania 6.1 5.3 11.3 7.8 2.9
Luxembourg 4.9 2.3 7.1 3.7 2.6
Netherlands 5.2 4.5 9.5 9.6 1.8
Poland 5.8 3.6 9.2 7.3 4.2
Portugal 5.8 4.4 10.0 7.6 3.0
Romania 5.3 6.2 11.3 7.6 3.2
Slovakia 6.7 4.4 10.9 7.8 5.2
Slovenia 3.8 2.7 6.3 4.8 1.5
Spain 3.3 2.2 5.5 7.0 1.9
Sweden 4.9 1.9 6.7 6.5 2.1
United Kingdom 6.3 4.5 10.7 6.5 1.9
Average
(unweighted) 4.8 3.2 7.8 6.7 2.6
Non-
European
Union
Bosnia and
Herzegovina 4.5 2.9 7.4 6.7 4.5
Georgia 4.1 3.2 7.2 7.3 2.5
Kosovo 2.5 1.8 4.0 2.1 6.6
Norway 2.8 3.0 5.7 5.4 1.9
Russia 2.4 2.4 4.7 3.9 1.2
Switzerland 3.4 3.8 7.1 9.1 1.5
Average
(unweighted) 3.3 2.8 6.0 5.7 3.0
North
America
Canada 7.9 5.6 13.0 9.4 4.2
United States 9.7 4.3 13.8 6.9 4.0
Average
(unweighted) 8.8 4.9 13.4 8.2 4.1
Source : GEM 2014 Global Report
chapter 2
Table 2.7: Phases of entrepreneurial activity in GEM economies in 2014, by geographical region (% of population aged
18–64 years)
Nascent
entrepreneur-
ship rate
New
business
ownership
rate
Early-stage
entrepreneurial
activity (TEA)
Established
business
ownership
rate
Discontinuation
of businesses (%
of TEA)
Africa Angola 9.5 12.4 21.5 6.5 15.1
Botswana 23.1 11.1 32.8 5.0 15.1
Burkina Faso 12.7 9.7 21.7 17.7 10.8
Cameroon 26.4 13.7 37.4 11.5 17.7
South Africa 3.9 3.2 7.0 2.7 3.9
Uganda 8.9 28.1 35.5 35.9 21.2
Average
(unweighted) 14.1 13.0 26.0 13.2 14.0
Asia and
Oceania
Australia 7.6 5.7 13.1 9.8 3.9
China 5.4 10.2 15.5 11.6 1.4
India 4.1 2.5 6.6 3.7 1.2
Indonesia 4.4 10.1 14.2 11.9 4.2
Iran 7.5 8.7 16.0 10.9 5.7
Japan 2.7 1.3 3.8 7.2 1.1
Kazakhstan 8.1 6.2 13.7 7.4 2.9
Malaysia 1.4 4.6 5.9 8.5 2.0
Philippines 8.2 10.5 18.4 6.2 12.6
Qatar 11.3 5.4 16.4 3.5 4.8
Singapore 6.4 4.8 11.0 2.9 2.4
Taiwan 4.4 4.1 8.5 12.2 5.1
Thailand 7.6 16.7 23.3 33.1 4.2
Vietnam 2.0 13.3 15.3 22.2 3.6
Average
(unweighted) 5.8 7.4 13.0 10.8 3.9
Latin
America and
Caribbean
Argentina 9.5 5.2 14.4 9.1 4.9
Barbados 8.5 4.2 12.7 7.1 3.7
Belize 4.3 3.0 7.1 3.7 4.7
Bolivia 21.5 7.1 27.4 7.6 6.9
Brazil 3.7 13.8 17.2 17.5 4.1
Chile 16.6 11.0 26.8 8.8 8.3
Colombia 12.4 6.7 18.5 4.9 5.6
Costa Rica 7.6 3.7 11.3 2.5 4.9
Ecuador 24.5 9.9 32.6 17.7 8.1
El Salvador 11.4 8.7 19.5 12.7 10.8
Guatemala 12.0 9.2 20.4 7.4 4.4
Jamaica 7.9 11.9 19.3 14.4 6.3
Mexico 12.7 6.4 19.0 4.5 5.6
Panama 13.1 4.1 17.1 3.4 4.5
Peru 23.1 7.3 28.8 9.2 8.0
Puerto Rico 8.8 1.3 10.0 1.3 3.6
Suriname 1.9 0.2 2.1 5.2 0.2
Trinidad and
Tobago 7.5 7.4 14.6 8.5 2.8
Uruguay 10.5 5.7 16.1 6.7 4.4
Average
(unweighted) 11.4 6.7 17.6 8.0 5.4
Nascent
entrepreneur-
ship rate
New
business
ownership
rate
Early-stage
entrepreneurial
activity (TEA)
Established
business
ownership
rate
Discontinuation
of businesses (%
of TEA)

chapter 2
2.2.5 Business discontinuance
Information on the rate of business discontinuance is
another indicator of the sustainability of entrepreneurship
in an economy. South Africa’s ratio of TEA to business
discontinuance is fairly encouraging – for every person
exiting a business in 2014, 1.8 were engaged in early-stage
entrepreneurial activity. However, the discontinuance rate
among South African businesses still remains greater than
the established business rate.
The reasons for business discontinuance are many and
varied. Some reasons could be seen as positive, such as the
opportunity to sell, pursuing another opportunity or planned
retirement. On the other hand, exits may be due to the lack of
business profitability, problems with accessing finance and
running out of working capital. Table 2.8 summarises the
reasons for business exit in South Africa. Only 9% of South
African business exits in 2014 were for positive reasons,
compared to an average of 16% in sub-Saharan Africa.
Sixty-two percent of businesses in 2014 closed for financial
reasons – either because they were not profitable, or
because they encountered problems in accessing financing
to sustain the business. Lack of profitability as a reason for
business exit shows a disconcerting upward trend. Although
the percentage of South African entrepreneurs exiting
businesses in 2014 because of problems accessing finance
is similar to the average for sub-Saharan Africa, significantly
more South African businesses are discontinued because of
lack of profitability compared to their regional counterparts.
This could be because of low levels of business-related
skills in South African entrepreneurs; lack of affordable and
efficient support structures and infrastructure (transport,
electricity, etc.); or the fact that many entrepreneurs in
South Africa are active in over-traded sectors populated by
low profit margin businesses and a high level of competition
for limited markets, which can threaten the sustainability of
their businesses.
2.3 Profile of entrepreneurs
GEM’s focus on individual-level participation enables
this research to reveal a range of demographic and
other characteristics about entrepreneurs. The research
also makes possible an assessment of the level of
inclusiveness in an economy – in other words, the extent
to which various groups (for example age, gender or
education level) engage in entrepreneurial activity. This
information can assist policy makers in targeting effective
interventions aimed at increasing participation, as well as
productivity in the economy.
2.3.1 Age distribution
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. Table 2.9 depicts South Africa’s TEA
involvement, disaggregated according to age category. The
trend is similar to that found in the overall GEM sample.
South Africans aged between 25–44 years are clearly the
most entrepreneurially active, accounting for between 50%
and 60% of all early-stage activity.
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 percentage
of 18–24 year olds in South Africa involved in early-stage
entrepreneurial activity is also significantly lower than the
average for sub-Saharan Africa (which at 26% is more than
five times the South African figure for this age group). The
youth represent a high proportion of the total population
within South Africa. The majority of school leavers in South
Africa do not pursue tertiary studies and therefore form part
of the potential labour force.
2006 2008 2009 2010 2011 2012 2013 2014 Ave SSA
Opportunity to sell 11,8 6,7 3,5 1,4 2,0 1,3 2,8 5,3 5,8
Business not profitable 11,4 31,3 26,0 24,4 32,6 28,7 36,4 42,5 27,7
Problems getting finance 32,1 29,0 27,2 39,1 24,0 28,2 28,9 19,4 20,8
Another job or business opportunity 4,3 6,8 6,0 0,9 6,0 5,4 2,9 3,2 6,9
Exit was planned in advance 2,7 1,0 0,0 0,0 0,0 0,8 1,8 0,5 3,4
Retirement 23,1 0,0 0,0 2,1 1,9 0,0 0,1 0 1,2
Personal reasons 14,7 21,7 21,0 15,5 15,6 19,8 23,2 19,9 16,9
Incident 0,9 3,5 6,4 1,9 0,4 0,6 3,9 9,21 7,08
* 2001-2005 not available
2001 2005 2009 2013 2014 Ave SSA
18–24 years 3,7 3,14 4,7 7,8 4,8 26,0
25–34 years 5,3 6,06 7,4 14,1 9,0 36,3
35–44 years 9,1 7,2 7,7 11,5 7,5 33,3
45–54 years 4,3 4,5 5,9 10,9 7,4 29,7
55–64 years 1,9 5,4 2,2 6,0 4,9 23,2
Read as: 3.74% of 18–24 year olds in 2001 were engaged in early-stage entrepreneurial activity.
Table 2.8: Reasons for business exit in South Africa, 2006–2014
As mentioned previously, one of South Africa’s most
serious social problems is the extremely high level of
unemployment and underemployment among the youth. The
disproportionately high unemployment figures for the youth
highlight the importance of finding 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.
Young people who drop out of education and training
avenues fail to access relevant occupational skills.
However, there is sufficient evidence that the problem
is not just poor levels of school completion but, more
importantly, that of skills mismatch. A particularly
pernicious problem is that the South African school system
does not prepare young people adequately for the realities
of the labour market. 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,
Table 2.9: TEA by age group in South Africa, 2001–2014
technical and marketing skills, as well as experience,
and are therefore at a disadvantage in a competitive and
changing business environment.
2.3.2 Gender and race differences
The 2014 GEM Global Report shows that although
the ratio of male to female participation in early-stage
entrepreneurial activity varies considerably across the
total sample of GEM countries, reflecting differences in
culture and customs regarding female participation in the
economy, a consistent finding is that men are more likely
to be involved in entrepreneurial activity. Table 2.10 shows
that the same pattern is present in South Africa. In 2014,
the ratio of male to female participation in South Africa is
1.2:1. Although South Africa’s overall TEA rates are low, an
encouraging finding is that in 2014 almost three-quarters
of TEA (for both genders) is opportunity-driven. Particularly
encouraging is that the female opportunity-motivated TEA
has increased from 64% in 2013 to 71% in 2014. This
is significantly higher than the average for sub-Saharan
African female entrepreneurs (58%).
In terms of entrepreneurial activity across the different
population groups, a very encouraging trend is that the
level of early-stage opportunity-driven entrepreneurship
continues to increase in African blacks. Among coloureds
Table 2.10: Entrepreneurial activity in South Africa by gender, 2001–2014
2001 2005 2009 2013 2014 Ave SSA
Male - opportunity 3.9 3.4 4.6 8.8 5.51 21.7
- necessity 2.2 1.9 2.3 3.3 2.21 10.2
- total 7.3 5.9 7.2 12.3 7.72 32.4
Female - opportunity 2.7 2.1 3.0 5.8 4.47 17.3
- necessity 2.6 1.8 3.0 3.1 1.74 12.0
- total 5.8 4.5 1.6 9.0 6.29 29.9
Read as : 3.9% of the early-stage entrepreneurial males in 2001 were engaged in opportunity-driven entrepreneurship

2005 2009 2013 2014
Black african - opportunity driven 22.9% 49.1% 58.3% 59.8%
- necessity driven 29.3% 30.1% 27.4% 24.8%
Coloured - opportunity driven 9.3% 3.0% 1.5% 3.4%
Indian - opportunity driven 6.4% 1.8% 1.8% 3.0%
- necessity driven 3,6% 0.6% 0.9% 0.0%
Whites - opportunity driven 19.3% 9.7% 7.3% 4.7%
96,5% 96,2% 99,3% 99,2%
Read as : 22.9% of Black African early-stage entrepreneurs in 2005 were motivated by opportunity and 29.3% by necessity.
and Indians, opportunity-motivated TEA showed a healthy
increase from the 2013 levels (from 1.5% in 2013 to 3.4%
for coloureds, and from 1.8 to 3.0 for Indians). White
South Africans, however, recorded their lowest levels of
opportunity-driven entrepreneurial activity yet (Table 2.11).
2.3.3 Education
An educated workforce, appropriately skilled and with
the capacity for innovation, is vital to an economy’s
competitiveness, productivity and growth. A sound
education system is therefore one of the key imperatives
for a competitive country. It is reasonable to believe that a
good quality education system will have a positive influence
on individuals’ self-efficacy and self-confidence, increasing
the chances of such individuals not only starting a business
but also being able to successfully navigate competitive
and changing business environments.
GEM research shows that there is a strong correlation
between perceived capabilities (skills) and TEA, reinforcing
that all forms of education (formal, informal and non-formal)
are important in developing entrepreneurial competences.
Figure 2.3 shows this positive correlation in all GEM
countries in that the higher the perceived skills the higher
the TEA.
2001 2005 2009 2013 2014 Ave SSA
None 0,0 0,0 13,2 5,1 5,8 32,5
Some secondary 45,5 42,5 29,9 33,4 34,2 30,0
Secondary degree 43,2 44,6 42,5 48,2 43,4 19,4
Post secondary 11,3 12,9 14,4 13,3 16,6 12,2
Table 2.11: Motivation for early-stage entrepreneurial activity by race group, 2005 -2014
Table 2.12 shows that 60% of early-stage entrepreneurs in
South Africa in 2014 have at least a secondary qualification,
double the average for the sub-Saharan African region. The
percentage of South African entrepreneurs with tertiary
level education has also shown a steady increase over
the years. The high education levels among South African
entrepreneurs may contribute to the fact that the country
has a higher percentage of people drawn to go into business
because of the opportunity motivation, compared to their
counterparts in sub-Saharan Africa.
If economic growth in South Africa is to be sustainable
as well as more inclusive, improving education at all
levels is critical. It is therefore of concern that the Global
Competitive Index (GCI) Report 2014/2015, notes that
South Africa continues to perform poorly in terms of
primary and secondary education and is once again
ranked last in terms of math and science education.
Higher education and training also need to be further
developed to provide the skills required for higher-value-
added employment and growth.
Table 2.12: Distribution of educational levels for TEA in South Africa, 2001–2014
Read as :13.2% of adults with no education in 2009 were involved in early-stage entrepreneurial activity
TEA-PercentageofAdultPopulation(18–64years)
Perceived Skills – Percentage of Adult population (18–64 years)
y = 0,0041 X2
- 0,0564X + 4,45
R2
= 0,4757
0 10 20 30 40 50 60 70 80 90
Figure 2.3: Correlation of perceived capability (skills) with the level of TEA, 2014
chapter 2
A South African perspective
on entrepreneurship
Source: 2014 GEM Global Report

chapter 3
Entrepreneurial Framework Conditions
give a better understanding of the
entrepreneurial environment within a
specific economy.
entrepreneurial contexts. Since its inception in 1999, GEM
has proposed that entrepreneurship dynamics can be
linked to conditions that enhance (or inhibit) new business
creationandgrowth.InGEM’smethodologytheseconditions
are known as the Entrepreneurial Framework Conditions
(EFCs) (summarised in section 1.3.2 in Chapter 1 of this
report). The state of these conditions directly influences
the prevalence of entrepreneurial opportunities, capacity
and aspirations, that in turn influences business dynamics.
Although the EFCs can be addressed at any stage of
development, these conditions function best in economies
with an underlying foundation of basic requirements and
efficiency enhancers. Understanding these conditions
is essential in order to get a better understanding of the
entrepreneurial environment within a specific economy –
this is done through the National Expert Survey (NES) which
is one of the standard instruments of measurement in
GEM methodology.
South Africa’s
Entrepreneurship Ecosystem
3.1 An overview of South Africa’s
business environment
For many years South Africa has been regarded as the
number one economy in Africa and has been considered
the gateway to the rest of Africa. This situation has now
changed and Nigeria has taken over this position.
International organisations such as the World Bank, the
World Economic Forum, Doing Business Report, Heritage
Foundation and the United Nations provide indices and data
on the underlying fundamental conditions required for a
well-functioning business environment (such as a country’s
macro-economic stability, infrastructure, education, labour
market efficiency, technological readiness and market
size). The Global Competitiveness Report 2014/5 notes
that South Africa continues its downward trend in overall
competitiveness,droppingto56th
placeoutof144countries.
Mauritius, the top performer in the sub-Saharan African
region, is now 17 places above South Africa. Key areas
of concern highlighted include South Africa’s continued
poor performance in the macro-economic environment.
Raising education standards and making the labour market
more efficient are seen as critical in view of the country’s
high unemployment rate. Since 2010, South Africa has
dropped 16 places in terms of labour market efficiency,
and continues to languish at the bottom of the rankings in
SOUTH AFRICA’S
Entrepreneurship
Ecosystem
In recent years, and particularly in the wake of the
global financial crisis, policy makers have increasingly
acknowledged that their development strategies need
to display an increased focus on the quality of growth in
their respective economies – growth that is sustainable,
people-centred and inclusive in that it seeks to generate
widespread employment and reduces poverty. In order
to address the challenges of sustaining development,
countries need to embrace extensive growth based on
productivity increases driven by improvements in the
quality of human and other capital and by innovation.
Government policies aimed at creating an enabling and
business-friendly environment are thus critical, as SMEs
play a key role in achieving sustainable growth and
contributing to economic development.
Particular environmental factors (social, political and
economic) are influential in creating unique business and
Condition 2013–2014 2014–2015
Public trust in politicians 88 90
Irregular payments and bribes 47 48
Burden of government regulations 123 120
Favouritism in decisions of government officials 110 104
Business cost of crime and violence 134 133
Quality of overall infrastructure 58 59
Quality of electricity supply 94 99
Quality of primary education 132 118
Quality of education 140 88
Quality of math and sciences 143 144
Quality of secondary education 140 122
Quality of management schools 15 24
Time required to start a business 80 90
Flexibility of wage determinations 140 139
Hiring and firing practices 143 143
Availability of financial services 2 6
Government procurement of advanced technology 105 112
Table 3.1: Global Competitiveness Report – 2013–14 vs. 2014–15
terms of quality of math and science education. The health
of the workforce is also a serious concern – South Africa
is ranked 132nd
out of 144 economies as a result of high
rates of communicable diseases and poor health indicators
more generally. Table 3.1 summarises South Africa’s
performance in key indicators, compared to 2013/14.
Investment confidence in South Africa is affected by a lack
of public trust in politicians (90th
), the business cost of crime
and violence (133rd
), poor quality and supply of electricity
(99th
) as well as the onerous labour laws. Since the
publication of the Global Competitiveness Report 2014/15,
the situation with respect to the supply of electricity has
markedly deteriorated with rolling blackouts and continuous
load shedding. This is seriously affecting all businesses but
especially small and medium ones who cannot afford the
cost of installing generators. It is expected that the rates
of early-stage entrepreneurial activity will further decline in
the next few years unless this situation can be addressed.
3.2 The National Expert Survey
Annually, each country participating in the GEM cycle
surveys at least 36 key experts or informants. The NES
is similar to other surveys that capture expert judgments
to evaluate specific national conditions. For example, the
World Economic Forum’s Global Competitiveness Report

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