Economics | Entrepreneurship is a neglected factor of SA's growth

By Pierre Heistein

This article originally appeared in the Business Report Opinion & Analysis pages on 27 October 2011. To interact with Pierre, visit www.facebook.com/understandingeconomics.

Recessions are times of great opportunity if entrepreneurial ability can be harnessed; consumer preferences have changed, inefficient businesses have closed down, and the slate has been wiped clean for a new generation of business. But does South Africa have the entrepreneurial ability to harness?

In economic theory, there are four factors of production: capital, land, labour and entrepreneurship. Of these, entrepreneurship is the enabling factor. It is the factor that brings together all the others in order to start and grow effective businesses and create value from the resources that we have. Entrepreneurs are very different from employed labourers, as they do not work within somebody else’s structure; they are the ones bearing the risk of their actions and they are paid for their success, not for their time.

Successful entrepreneurship is crucial for a growing economy. Behind every successful business creating employment and building wealth for the country is an entrepreneur who saw an opportunity and put him or herself at risk to make a success of it.

Entrepreneurship is the ability in business to innovate rather than imitate and therefore underlies economic growth and progress. It is no surprise that the Global Entrepreneurship Monitor (GEM) report showed a direct relationship between the level of early-stage entrepreneurial activity and per capita income across a range of economies.

Despite this, the development of entrepreneurial ability is grossly neglected in South Africa. Only 5% of people between the ages of 25 and 64 in South Africa are entrepreneurs; half the percentage of the US and the larger emerging economies. South African policy has placed far more emphasis on the importance of the other factors in order to fuel growth. Around 20% of the 2011/2012 budget was allocated to education, by far the largest receiver of government’s funds, in order to boost the ability of labour. In the New Growth Plan, the Department of Economic Development outlined how infrastructure, and therefore capital growth, will play a key role in reaching the employment goals of 5 million new jobs. Yet apart from a few small projects run by government departments, NGOs and some universities, little is being done to develop entrepreneurship on a national scale.

Core business skills such as accounting, marketing, economics and management are a large part of the curriculum in schools and universities, but entrepreneurship is a little different. Entrepreneurship is the ability to see opportunities and mobilise the resources necessary in order to take advantage of them. Entrepreneurs are willing to experiment and explore new areas of business activity. They view failure not as the worst case scenario but rather as a part of the process and are skilled in being able to move on from failure and use it to their advantage.

These skills, and this resource, need to be developed just like any other. The current schooling and university system is strongly geared to teaching people how to be effective employees. We need to start teaching more people how to be effective employers. To develop entrepreneurial ability, students need to be exposed to a wide range of ideas and opportunities that have both failed and succeeded. They need to be taught that failure is not something to be scorned, and that business success is just as worthy a goal as career success. In addition, budding entrepreneurs need to be supported. Finance is always a restriction, but the GEM found that this is no more a problem in South Africa than in other countries where entrepreneurship is thriving. More importantly, entrepreneurs need guidance from those who have succeeded before them, labour laws and a legal framework that allows them the flexibility to take the risks they need to, and the skills background that allows them to create rather than follow.

This article is published under the Creative Commons Attribution license.