by Anton Ressel (Fetola)

Entrepreneurship in SA

It’s better than you might think

Many small businesses and start-ups have been forced ‘underground’ to escape heavy tax and employment burdens
Entrepreneurial Sector
Recent studies show a worrying and very steep decline in the number of new businesses being started in South Africa. However, if one looks a bit deeper, there is cause for optimism.

The recent Quarterly Labour Force Survey by Statistics SA reports that over the past decade there has been a staggering 76% decline in the number of new businesses  being registered, from 250 000 in 2001 to only 58 000 in 2011. However, this is possibly as much in response to increasingly onerous tax and labour laws in SA, as to the recession or other global economic conditions. 

Labour economist Loane Sharp says indications are that many small businesses and start ups have been forced ‘underground’ in response to deteriorating conditions for starting a small business. In a nutshell, Sharp argues that the figures we are seeing are not a true reflection of entrepreneurial activity, but rather of an ‘informalisation’ of the SA economy in a bid to escape heavy tax and employment burdens placed by Government on the SMME 
sector, and business as a whole.

This is worrying on a number of levels, because it suggests that the intentions of Government to create an enabling climate for small business are in fact doing the opposite. If small business is squeezed too tight by excessive Government regulation, trade union domination of the labour market and a business climate that stacks the odds against start-up success, one of two things happen – either the business cannot survive, or it goes underground.

The much-vaunted potential of the SMME sector to create meaningful jobs and contribute to the economy is largely negated if entrepreneurs operate ‘below the radar’. An unregistered business does not contribute to the tax pool and does not offer employees with job security, contracts, PAYE, UIF and other benefits.

But not all is doom and gloom. Many organisations and individuals engaged ‘in the trenches’ in enterprise development and support to emerging entrepreneurs report increasingly positive signs of a renaissance in entrepreneurial activity. While the numbers may be down on paper, they say, the quality and innovativeness of the emerging business sector is cause for optimism. 

“This year was by far the most promising since 2007 in terms of the quality and viability of the organisations who applied to be a part of our programme. We were blown away by the potential,” says Catherine Wijnberg, founder of the Legends programme, a national SMME and non-profit business incubator offering mentorship, business support, workshops, e-learning and other resources to support the growth of beneficiaries.

“We had an inspiring pool of applicants this year and people in all provinces were determined to succeed, despite the difficult economic climate and restrictive legislation,” she adds.
Donald Kau, Head of Corporate Affairs at Santam, agrees on the upsurge in entrepreneurship. “Many of my peers who started out small, are now well established entrepreneurs. Typically, they open an informal part-time car wash or a hair salon, and the business expands organically over time. Once they are established, which may take several years, many of them do register their businesses – either because their suppliers or investors require them to do so, or because there may be licences and permits required to operate, such as with a tavern.”  

While it would be foolhardy to ignore the statistics that point to an entrepreneurial sector in crisis, it is important to recognise that all is not doom and gloom, in fact it’s better than many think. There are new businesses being started by passionate, capable and determined entrepreneurs every day in SA, and while many of them will fly under the radar for some years, by necessity as much as by choice, hopefully the legislative and regulatory climate will shift  – for them to emerge and take their rightful place as contributors to a country crying out for sustainable job creation through entrepreneurship.  
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Issue 68