Reference: Published by Luke Fraser (BusinessTech), 11 February 2024

Due to the hard operating environment, South African entrepreneurs are increasingly unwilling to start new enterprises, limiting the creation of urgently needed jobs.

The Stellenbosch Business School’s 2023 Global Entrepreneurship Monitor South Africa (GEM SA) study shows that South Africa’s early-stage entrepreneurial activity (TEA) has dipped below pre-pandemic levels.

According to the report, the country’s weak economy and insufficient enabling environment for businesses limit entrepreneurship’s potential to boost economic growth, job creation, innovation and technology advancement, and social cohesion.

South Africa did improve its score on the GEM National Entrepreneurial Context Index (NECI), which measures the favourable environment for entrepreneurship and launching a new business, from 46 out of 50 nations in 2021 to 40 out of 51 in 2022.

However, South Africa was one of just three countries where all 13 of the enabling conditions for entrepreneurship were classified as insufficient (scoring less than five out of ten).

“Overall, we are not seeing resilience and recovery of entrepreneurial activity to pre-pandemic levels in South Africa compared to global and African perceptions, although these also are not optimistic,” stated Angus Bowmaker-Falconer, the primary author of

“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.”

The report’s co-author, Associate Professor Natanya Meyer, expressed concern that the intention to start a new firm has dipped below pre-pandemic levels.

“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,” Meyer stated in a press release.

TEA, which includes active enterprises less than three years old and new businesses up to three and a half years old, fell from a pandemic high of 17.5% to 8.5% in 2022/23, a significant decrease from the 11% recorded in 2019.

Furthermore, established business ownership (more than 3.5 years) fell nearly half from 3.5% in 2019 to 1.8% in 2022/23, following a big peak of 5.2% during the pandemic years.

“The extent to which the COVID-19 epidemic affected entrepreneurship levels remains unclear. Lockdowns and related restrictions severely affected people’s ability to work and had a negative impact on trade and markets, putting pressure on economies around the world,” Bowmaker-Falconer added.

“At the same time, this crisis presented ‘problems to be solved’, and many new and established businesses pursued these opportunities.”

“In lower-income economies such as South Africa, there was generally less financial support from governments, as well as possibly fewer available jobs and income alternatives, which may have pushed more people into starting their businesses in 2020 and 2021.”

Furthermore, the company departure rate, or the percentage of persons who left their business in the previous year owing to selling or shutting it down, fell to 5% in 2019 from an all-time high of 13.9% in 2020/21, with the pandemic being the primary cause for business owners to leave.

The report also revealed that entrepreneurs had low and diminishing expectations about their company’ ability to create jobs.

In 2019, three out of ten business owners said they planned to hire six or more individuals in the following five years.

However, this figure fell to two in ten by 2022, which Bowmaker-Falconer attributed to the overall dismal economic conditions and enabling environment.

What to improve

Although the report’s findings reflect a bleak image of the condition of entrepreneurship in South Africa, Meyer emphasized that several obstacles arising from the Covid-19 pandemic must be overcome, in addition to the myriad issues faced by the country.

“As can be seen by the featured case studies in the report, South Africans are resilient, and with a better ecosystem environment factors in place, more and better-performing businesses will emerge,” she went on to say.

“Therefore, improving policies and creating a more conducive enabling environment should be a main priority for policymakers and other stakeholders.”