Creating jobs requires fertile soil for small businesses to survive and grow

World Bank economist Jacques Morisset writes that the net rate of entry of new firms in South Africa is about 60% lower than in countries with similar income levels. He says the economy lacks dynamism.

Every time I travel through the rest of Africa or overseas, I notice the contrast in the exuberant buzz of little companies. South Africa has been very successful in creating big companies, but we need more lovely family businesses that employ fifty people and provide quality goods and services. The numbers do not support the image of an entrepreneurial nation.

It’s not all bad news. The government and private sector have put a huge effort into encouraging the creation of small businesses. Stats SA reported that small businesses generated 22% of total turnover in the formal business sector in 2019 compared to 16% in 2013. That’s still low, but it is good growth. To sustain this growth maybe the soil in which businesses grow needs attention.

Morisset suggests two reasons for South Africa’s slow economic development: low public investment in physical and social infrastructure and a loss of “innovative drive” in many businesses.

Most readers will recognise the first of these. SA’s public investment has been only 2.9 % of GDP a year over the past two decades, which is about 5 percentage points lower than many countries in East Asia and a fraction of China’s 20%. This is reflected in failing infrastructure – think Eskom and Transnet.

But economic reasons don’t explain it all. There’s a deeper malaise, a toxic blend of corruption with a lack of skills and an apparent lack of commitment and initiative that wastes the public investment that does occur. This was illustrated in the shocking news that 81% of grade 4 children are unable to read with understanding. We spend a lot of money on education. It still does not work. That is unforgivable. We have a management problem and a leadership vacuum.

But what about the second of Morisset’s levers, the lack of innovative drive in business? Many are looking to the private sector to save the economy. Is he serious?

He attributes the drop in labour productivity in all sectors over the past few decades to a lack of competition, in which poor-performing firms are replaced by more productive ones.

Again, that macro-perspective does not explain all that is happening. We do have some world-beating businesses with highly innovative ideas (think Discovery, for example) and some exceptional business leaders; but why too few?

Clearly for 80% of South Africans apartheid denied exposure to business and opportunities to try it out. It takes special leadership to reverse the subtle effects of deprivation and helplessness when it blankets whole communities and paralyses the mind.

Our education system does not encourage enterprise. I recently saw first-hand how Sweden’s school system encourages learners to follow practical and highly valued technical options in high school, with career-related skills they can apply immediately, often in their own businesses. What a tragedy that technical skills are regarded as second-class in SA when we need them so desperately!

Then well-meaning officials in government who have never run a business create policies and projects with unintended consequences that kill the small businesses that do exist.

Maybe if we supported existing businesses as much as we encourage young people to create new ones, we would create more jobs. It’s hard to overstate the discouragement as entrepreneurs’ dreams are shattered by disasters of human origin, like load shedding, corruption, irrational regulation, and so on. Why bother wasting one’s life savings?

Wouldn’t it be great if, instead of just planting more entrepreneurial seeds in hostile soil, we could make the soil fertile? Then the plants would grow by themselves.

What an opportunity for leadership.

Jonathan Cook, a counselling psychologist, chairman African Management Institute. If you’d like to read previous columns in this series or ask Jonathan a question please visit http://www.africanmanagers.org/jonathan-cook