Commentary: State of Entrepreneurship in SA Since The Pandemic

At the start of the pandemic and the consequent global lockdowns, academics, business leaders and policymakers tried to answer one burning question: How would the pandemic impact SMMEs? All the experts around the world had different perspectives as to whether the pandemic would adversely impact entrepreneurship. For instance, academic researchers suggested there could be significant changes in entrepreneurship dynamics involving nascent, new, and potential entrepreneurs. Interestingly, some researchers expected overall entrepreneurial intent to increase. This was because of the notion that an increase in unemployment and insufficient job prospects could likely lead to people becoming necessity entrepreneurs, as they consider starting their own business. Regarding opportunity-motivated entrepreneurs, risk propensity will be a significant factor. Management consulting firms advocated that technology and digitisation of critical business operations would be vital for SMME survival. Governments tried their best by extending relief funds to businesses that met the criteria. But a couple of years later, can we say entrepreneurship is stronger or weaker than before the pandemic? This commentary highlights important data to help us answer that question.

Key Total Entrepreneurship Demographic Information

According to the Global Entrepreneurship Monitor 2021/2022 Global Report, 19.2% of South Africa’s 18-34 years/old population is involved in Early-Stage Entrepreneurship Activity compared to 15.3% of the 25-64 years/old population. Furthermore, 18.8% of SA’s male adult population stated they are in Early-Stage Entrepreneurship compared to 16.2% of SA’s female adult population. Both these figures are higher than in 2019 due to the overall increase in SA’s Total Early-Stage Entrepreneurship Rate. However, gender inequality in entrepreneurship has slightly increased since the pandemic.

How Perceptions, Intentions and Entrepreneurial Activity Have Changed Since The Pandemic

According to GEM, 57.9% of SA’s adult population agree there are good business opportunities in their area, however, 53% of these people say they will not pursue such opportunities because they are afraid their businesses will fail. The data suggests that people are less likely to recognize business opportunities and fear of failure is a greater hindrance compared to pre-pandemic. But it does appear that people with a high-risk propensity were undeterred by the pandemic because most levels of entrepreneurial activity and entrepreneurial intentions have increased overall: TEA increased from 10.8% to 17.5%, EBO increased from 3.5% to 5.2% and entrepreneurial intention increased from 11.9% to 20% between 2019 to 2021. Generally speaking, the majority of adults believe they have the necessary skills and ability to successfully start a business (69.7%).

How is The Tech Ecosystem Faring?

At face value, South Africa’s Tech Ecosystem has never been better: more startups are emerging while funding and valuations have skyrocketed since 2020. Disrupt Africa recently published its annual Ecosystem report and the data is quite insightful.

The tech ecosystem is dominated by Fintechs (30%), e-commerce & retail tech (10.2%), health tech (9%) and ed-tech (8.6%)

How long will the funding boom continue?

What was the impact of technology acceleration in 2020? According to Disrupt Africa’s data, a whopping 95% increase in investments compared to 2019. The rapid increase in investment continued in 2021, as startup funding increased by a further 136%. Fintech startups are responsible for such an influx in investments as they account for a staggering 61.2% of the funding in 2021 (dollar amount). The tech ecosystem is also attracting more investors: in 2015 there were 22 investors funding tech startups whereas there were reportedly 165 investors in 2021. It remains to be seen if and when this funding boom will end. A trend of increasing employee layoffs in the global tech startup ecosystem presents warning signals to local tech startups to seek wise investments and not burn through investors’ money.

The Gender Representation Gap

There is still a lot of work to be done regarding the gender gap in the tech ecosystem: less than 15% of startups in Disrupt Africa’s database have at least one female founder. Aspiring female tech entrepreneurs need to be equipped with the necessary skills and cultural barriers need to be addressed.

Startup Hubs

Cape Town and Johannesburg dominate the tech startup ecosystem: 87.6% of startups’ HQs are situated in Cape Town and Johannesburg. Pretoria is a distant third place. Initiatives such as Tuksnovation are doing their best to change the leaderboard.

Final Thoughts

Entrepreneurship appears to be thriving in South Africa but we need to increase efforts to help early-stage entrepreneurs build sustainable businesses because the Total Early-Stage entrepreneurial activity rate is significantly higher than the established business ownership rate, suggesting that most early-stage small businesses do not last more than 3.5 years on average.

Pretoria needs to implement initiatives and policies that empower and attract talented aspiring entrepreneurs. Potentially establishing more accelerators and incubators, as well as innovation incentives should be major priorities. More female-centred entrepreneurship training programs, support and mentorship programs need to be implemented to close the gender gap in the tech space.

One must not be naive when reading the data, not every entrepreneur thrived amid the pandemic and more research needs to be conducted to find out how to aid entrepreneurs that discontinued their businesses or underwent long-lasting economic hardship. Even in the tech space, funding is dominated by a few successful startups. Overall, it is very encouraging to see that the pandemic ignited the entrepreneurial spirit (whether by necessity or opportunity recognition) in South Africa.