Poor economy stops many from trying to open a business – report

A comprehensive report on SA’s economic landscape has unveiled alarming findings, shedding light on the hurdles entrepreneurs face.

According to the latest 2023 Global Entrepreneurship Monitor South Africa (GEM SA) report released yesterday, the country’s early-stage entrepreneurial activity has declined to below pre-pandemic levels, with fewer people than before considering starting new businesses.

The report also noted that the highest motivation to become entrepreneurs was “out of necessity and to earn a living as jobs are scarce”, but many were now discouraged and even closing shop.

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Dudu Motsepe, 29, a nail and lash technician who closed shop at the beginning of the year, said despite load shedding slowing down business, crime and the cost of living skyrocketing, “it was more expensive to keep it running than closing it down”.

“I regret starting my business. After losing my job at a salon that also could not afford to keep its lights on, I thought doing the business in my backyard would make things better,” she said.

“People always think prices are hiked from small businesses because we are greedy, but there’s a lot that goes into the cost of products, the time, electricity and other things. I just couldn’t keep up.”

The report highlighted that electricity shortages had for many years directly disrupted economic activity and increased operating costs for businesses.

“Transport, logistics and other infrastructure have deteriorated due to poor management, impacting the country’s export and related capacities.

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This low growth environment was aggravated during the pandemic years from 2020 to 2022,” the report read.

“Other internal problems, such as poor governance and corruption and external factors such as the Ukraine/Russian and other global conflicts leading to rising energy costs, have significantly impacted the SA economy.”

“Other significant factors include a weakening currency and government finances at the fiscal edge. The very poorly performing South African economy, for over decades now, and the prevailing sociopolitical context dynamics, together form a critical backdrop to entrepreneurship propensity and the likelihood of productive entrepreneurial outcomes.”

It also revealed that the National Entrepreneurial Context Index for 2022 showed that South Africa ranked 40th out of 51 economies in 2022, with a score of 4.10.

“Clearly, the entrepreneurial ecosystem factors require serious attention. Entrepreneurial resilience is a complex phenomenon and important for successful new enterprise development”.

Natanya Meyer, associate professor at the University of Johannesburg and co-author of the report, said a particular concern was 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 SA emerged from the pandemic.

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“All had declined to pre-pandemic levels and below in the latest survey,” she added.

“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 said although the findings seem to tell a gloomy picture of the state of entrepreneurship in South Africa, “we must remember that we still have many challenges to overcome as a result of the aftermath of Covid, added to already existing socioeconomic problems faced by the country”.

“New businesses in SA are insufficiently focused on sustainability considerations in their strategies and operations. “This is likely due to a combination of awareness and business distress,” she added.

“New digital technology adoption post the Covid pandemic aligns with international trends.

“It appears that women entrepreneurs in South Africa adopted new technologies at a greater rate than men since then.”