South Africa’s early-stage entrepreneurial activity (TEA) has declined to below pre-pandemic levels. This is among the many findings from the latest Global Entrepreneurship Monitor South Africa Report, released on 1 February and the GEM National Entrepreneurship Context Index highlighted in the new Global Report 2023/2024 Global Report.
National Report Findings
The latest GEM South Africa report noted that fewer people than ever before are considering starting new businesses. The highest motive among South Africans to become entrepreneurs is out of necessity and to earn a living as jobs are scarce, particularly among men.
“Overall, we are not seeing resilience and recovery of entrepreneurial activity to pre-pandemic levels in South Africa compared to global and African perceptions,” said GEM SA lead author Angus Bowmaker-Falconer, a research fellow at Stellenbosch Business School.
Natanya Meyer, associate professor in the SARChI Chair for Entrepreneurship Education at the University of Johannesburg and co-author of the report, said: “A particular concern is the low intentions to start a new business, ownership of new businesses (in existence between 3 months and 3.5 years) and established businesses (more than 3.5 years) seen as South Africa emerged from the COVID-19 pandemic. All had declined to pre-pandemic levels, and below, in the latest survey. The percentage of adults aged 16-64 intending to start a new business in the next three years declined to 10% in 2023, the lowest in 20 years, after reaching an all-time high of 20% in 2021/22.”
Total Entrepreneurial Activity (TEA), consisting of active businesses less than 3 months old and new businesses up to 3.5 years old, declined from a pandemic high of 17.5% to 8.5% in 2022/23, below the 2019 level of 11%.
Established business ownership (more than 3.5 years) almost halved, from 3.5% in 2019 to 1.8% in 2022/23, after an encouraging peak of 5.2% in the pandemic years.
Bowmaker-Falconer said: “The extent to which the COVID-19 pandemic influenced entrepreneurship levels remains complex. Lockdowns and related restrictions seriously disrupted how people worked and negatively impacted trade and markets, putting pressure on economies worldwide.”
A positive signal was that the business exit rate, the percentage of people exiting their business over the past 12 months due to selling or shutting down, recovered to the 2019 level of 5% after an all-time high of 13.9% in 2020/21 when, as expected, the impact of the pandemic was the leading reason for business owners exiting.
The report also found that entrepreneurs had low, and declining, expectations of their businesses being able to create jobs.
The full report, titled Entrepreneurial resilience during economic turbulence, can be downloaded at the GEM website.The study is based on a survey sample of 3,000 South Africans and the input of 36 national experts. The report was released by Stellenbosch Business School and sponsored by the Small Enterprise Development Agency (Seda) and Standard Bank.
South Africa in the GEM National Entrepreneurship Context Index
The GEM National Entrepreneurship Context Index (NECI) measures the Entrepreneurial Framework Conditions (EFCs) that make up the context in which entrepreneurial activity takes place in a country.
According to the GEM 2023/2024 Global Report, the quality of South Africa’s overall entrepreneurial environment fell in 2023. The score had improved from 3.7 in 2021 to 4.1 in 2022, but fell to 3.6 in 2023, third lowest of the 49 GEM participating economies.
There were declines in 11 of the 13 EFCs. Only “Entrepreneurial Finance” and “Ease of Entry: Market Dynamics” recorded increases. The greatest fall was in Social and Cultural Norms, down from 4.5 in 2022 to just 3.3 in 2023. Such a large fall for this EFC is unusual, because Social and Cultural Norms typically change very slowly. Scores for other EFCs also fell substantially, including for both educational EFCs, for Government Entrepreneurial Programs, for Government Policy: Support and Relevance, and for Research and Development Transfers. No South African EFC was scored as sufficient (score ≥5.0) in 2023.
“South Africa lagged both global and African levels of entrepreneurial activity and the effectiveness of its support for entrepreneurial ecosystem development,” said Bowmaker-Falconer. “This is reflective of our poorly performing economy, the impact of the energy crisis and deteriorating transport, logistics and other public infrastructure and service delivery, and the lack of a favourable enabling environment to support business start-up, growth and sustainability.”
Access the GEM 2023/2024 Global Report.