Article by Ayanda Mdluli – Business Report Thursday, February 3 2011.

Although the legacy of apartheid has hindered the chances of many South Africans to become entrepreneurs, Africans still have the potential to achieve by establishing businesses that can be drivers of economic growth on the continent, according to Sir Richard Branson, the renowned entrepreneur and billionaire founder of the Virgin Group.

In an interview with Business Report yesterday, Branson stressed the importance of small and medium enterprises (SMEs) as engines that power economies, create jobs, fuel growth and ultimately transform communities.

Branson is in the country to attend an exhibition hosted by the Branson Centre of Entrepreneurship at the Fashion Kapitol in Johannesburg.

The main feature of the exhibition was an outdoor fashion show, which featured Lesego Malatsi’s 2011 winter collection. Malatsi is an entrepreneur at the Branson centre and managing director of Mzansi Design Emporium.

Branson said the potential in Africa was one of the reasons the Branson centre was established.

It is located in the Johannesburg central business district and was launched by Branson and the non-profit foundation Virgin Unite in 2006. The centre aims to provide a launch pad for bold and enterprising South Africans to create successful businesses.

The centre supports aspiring entrepreneurs by teaching practical business skills and providing access to coaches. Mentors are available to share their experiences and their networks. Students are also introduces to financing opportunities which enable their businesses to grow.

He stressed that the key to ensuring success of the SME sector was to develop aspiring entrepreneurs with practical business skills and to support entrepreneurs to grow their businesses and provide advice from successful entrepreneurs on how to gain market access and funding.

Branson’s business interests in Africa would not be deterred by the current revolts in Egypt and Tunisia. In fact, he said he supported the revolts, arguing that it was time Africa stopped dictatorships in their tracks.

“I support what’s going on in Egypt and Tunisia because people do not need dictators, people need freedom.

“This is the most exciting thing to happen.”

However, the business mogul pointed out that the crises in Ivory Coast and Zimbabwe were disturbing.

He reiterated that he would not do business with countries that had leaders who disregarded the rule of law and the will of their people.

According to Branson, both political will and economic freedom are critical factors to ensuring sound business practices in a country. He stressed that Africa should not tolerate dictatorships.

Judi Sandrock, the chief executive of the centre, said the biggest challenge with aspiring entrepreneurs in South Africa was that they did not believe in themselves because society and their families had often instilled a stereotype that one should get a job and forget about starting a business.

She said the centre aimed to break down and overcome those psychological barriers and provide security.

“A lot of people are discouraged by their families from starting a business, at least here at the centre they are surrounded and mentored by likeminded people and other successful entrepreneurs.”

She noted that another important asset at the centre was the provision of strong mentors in the process of polishing entrepreneurs to become successful business owners.

Besides listening and understanding where they could best add value, mentors could also provide access to their networks, which was key in successful business practice.

Another issue which affected South African entrepreneurs was the limited access to funding from the large commercial banks.

Branson said banks across the world had a tougher stance towards entrepreneurs and he said a pro-entrepreneurship attitude and banking sector in South Africa was key to ensure faster growth.

“I started with less than a thousand rand, but managed to make it in the long run.

“Banks may lose money nine times out 10, but that one successful entrepreneur could make a significant difference and a valuable contribution to the growth of the economy,” Branson said.

According to new research by the Global Entrepreneur Monitor South African women will play an even greater role in unlocking economic growth in the country. Softline CEO, Ivan Epstein says that South Africa has many excellent examples of woman entrepreneurs and it is gaining momentum. “I believe that in an emerging market environment such as South Africa entrepreneurship will continue to benefit as more successful woman entrepreneurs enter the economy.” Epstein says that women entrepreneurs are needed to help diversify the economy and create jobs.

He says that Government and the private sector have started to recognise that entrepreneurship is a catalyst for economic growth with the private sector to some degree being driven by entrepreneurial thinking. But Epstein says more needs to be done to develop and foster entrepreneurship in South Africa. “In any democratic economic environment it is important to foster entrepreneurship. The ground is far more fertile in an emerging market such as South Africa where we are seeing even greater initiatives of entrepreneurship transpiring.”

According to research barely 5 percent of the South African population is involved in entrepreneurship compared to a norm of about 15 percent in other emerging economies such as China and Indonesia. Epstein says that the dynamics are different in South Africa as opposed to other countries. “Inflation, South Africa’s GDP, and levels of unemployment are all factors to take into consideration. We have to look at where we have come from over the past 15 years. It is not just a matter of looking at statistics across the globe. South Africans are an extremely driven, entrepreneurial and a self-sufficient motivated nation.”

But support for entrepreneurial thinking has to also come from venture capital firms. By contrast to the number of venture capital firms in South Africa, in the United States there are approximately 1,200 venture capital firms all searching for the next big idea. Epstein says it is difficult to compare the dynamics of South Africa to that of the United States. “They have vast access to capital that most other countries in the world don’t have. Venture capital firms flourish in the United States due to the easy access of capital; as well as millions of ideas and start-ups that surface each year, which in turn are sourced from many other countries across the globe.

He says that local banks also operate differently in South Africa and that risk appetite is different. But the failure rate for entrepreneurship is not necessarily always due to a lack of funding. “The reality is that many banks and private equity players are under pressure to make their money work and many entrepreneurs struggle to produce a viable business plan.
Epstein says that the best way to learn is to attend the ‘University of Life.’ He says that not everyone is born an entrepreneur. “Education definitely plays a major role in formulating formal plans and thinking, but there are many other options available to potential entrepreneurs wanting to put a formal plan in place “.

He says that the good thing about an entrepreneur or a great entrepreneurial idea is that too much planning or formality will potentially restrict the venture. “If you have an idea or concept, drive and passion with a burning desire to succeed, don’t let anything stop you.”

Article by Wiseman Khuzwayo

SOUTH AFRICA needs to find more ways to support and nurture entrepreneurs if the country is to avoid becoming a backward welfare state, where handouts risk draining the country’s innovative talent and its ability to produce equitable growth and employment.

This is according to Endeavor South Africa, which is part of a global non-profit organization that identifies and supports innovative, high-growth entrepreneurs in emerging markets.

Endeavor SA and First National Bank will be hosting the second summit on the state of entrepreneurs in Cape Town during Global Entrepreneurship Week (GEW).

GEW is an initiative in which millions of people and corporate around the world join a growing movement of entrepreneurial people to generate new ideas and to seek better ways of doing things.

Malik Fal, the managing director of Endeavor SA, said South Africa’s economy had structural imbalances that needed to be addressed.

He said the situation was dire. Citing statistics from the SA Revenue Service, Fal said about 6 million taxpayers were subsidizing nearly 14 million social grant beneficiaries.

More than 4.3 million were unemployed out of an active population of about 15 million.

Endeavour SA said the burden was passed onto business to sustain those not working. However, just 300 000 of the country’s businesses employ five or more people, according to the FinScope 2010 South Africa Small Business Survey.

Added to this, South Africa is doing poorly in its ability to foster successful and sustainable new businesses.

It is ranked well behind fellow emerging countries such as Brazil and Chile, where entrepreneurs are starting up enterprises at more than triple the rate of start-ups in South Africa, according to the 2009 report by the Global Entrepreneurship Monitor.

“It is clear something has to be done as more South Africans, both inside and outside the government, add their name to a chorus of those that believe the country’s support to small businesses has failed to make any meaningful impact,” the organization said.

Endeavour SA said the only way out was to find better ways to foster and support entrepreneurs, particularly those starting high-growth companies.

Article by Futurist Clem Sunter. (Cape Times 28 September 2010)

Set up a venture capital fund of R100bn funded by big business and invest it in small enterprises with proven business experience and we will create wealth and jobs for the people, says futurist Clem Sunter in his latest scenario to help South Africa take the high road to success.

Funded by a once-off turnover tax on big business, this is one way to get ordinary people to do extraordinary things, and get people back to work, he adds.

In terms of his plan, Sunter says that the finance raised would then be spread between the provinces and administered by venture capitalists with proven small business experience. The large companies would each have a shareholding in the fund commensurate with their contribution.

Sunter, famous for his High Road, Low Road scenario while at Anglo American in the 90s, believes that the trade off for big business could be getting credit in terms of BEE points.

For example, the scorecard for banks would be amended to include points for setting up a small loan division and points on the volume of business executed. The same would apply to the JSE in terms of the number of small businesses listed.

The scorecard for big business would include percentage targets in their procurement programmes in terms of contracts with businesses below a certain size.

As for accounting firms, their scorecards would be revised to allow for a certain amount of auditing and accounting services for small businesses – coupled with lower charge rates and less stringent standards.

The scorecard for business schools, says Sunter, would reflect the amount of training and mentorship that they would do for entrepreneurs.

Rural communities would be allowed to set up local energy transfer systems whereby local citizens could barter goods and services between one another without having to pay VAT.

As an additional incentive to small businesses, they would be exempt from tax (except for VAT) up to an annual profit of R1m.

This, says Sunter, would immediately legitimize virtually all entrepreneurs as well as provide them with compensation for the risks they take – including the fact that they have to put their own money aside for a pension in old age.

The shortfall in tax would be met by introducing a graduated system of company tax similar to the one that operates for income tax.

And to make it easier for small business to create employment (and one arguably that would cause major problems with organized labour), Sunter suggest that laws should be simplified to allow small business owners to hire and discharge employees with more flexibility. This would not apply to households employing domestic workers.

Large agricultural enterprises would be encouraged to transform themselves into networks of small farms which could still achieve the economies of scale and efficiencies of the larger units, he reckons. Land distribution implemented in this way would not harm food security.

Campaigns to celebrate South Africa’s individual pockets of excellence would then be undertaken to create a bandwagon effect with the message that “if this person can do it, so can you.”

Looking back at the “High Road, Low road” scenario, Sunter points out that in the end South Africa put its faith in the common sense approach of whatever leadership emerged from a truly democratic evolution to a new South Africa.

Our faith, he believes, was not misplaced. “Despite all the faults we know about such as corruption, lack of service delivery, crime and an underperforming education system, the country took the political “high road”.

“Our economic growth has improved though it is still below the stated goal of 7 percent per annum. We are the largest economic player on a continent whose prospects have undergone a dramatic re-evaluation for the better with currency remaining strong, the stock market having performed better that most others internationally and government finances have been handled well.

“Our national debt to GDP ratio at 28 percent compares favourably with that of the US, Brittain, Italy, Greece and Japan – all of whom are now well above the recommended ceiling of 60 percent,” he points out.

But South Africa has failed in lowering the unemployment rate. Looking at the road ahead, Sunter believes that “if we take the wrong turn, all the good work done in the interim would come undone on account of a failure of economic growth.

“We would enter a phase of alternating dictatorial and populist regimes with the chance of being spun off towards a waste land placing us again at the crossroads.”

Article by Samantha Enslin-Payne

Two thirds of sector’s 6 million enterprises are one-person shows, but collectively it provides 9 million jobs.

There are almost 6 million small businesses in South Africa, most of which are survivalist enterprises providing work for one person. While the sector will not alleviate poverty on a significant scale as the government intends, it does provide a safety net for an estimate 9 million people.

This is one of the findings of the Finscope South Africa Small Business Survey 2010, which was released on Friday.

Neil Higgs, the director of innovation at TNS Research Surveys said the sector provided about 9 million jobs in both the formal and informal sector. “Given that 12.7 million people are employed in South Africa this sector provides significant employment,” he said.

He added that the monetary contribution of this sector was not huge, both to gross domestic product and to those employed, but its social contribution was significant as it provided work for so many “although it may not be very well paid” work.

THS conducted the survey on behalf of FinMark Trust, the Department of Trade and Industry, the Swiss State Secretariat for Economic Affairs, Absa, Standard Bank, the Tourism Enterprise Partnership and the Business Trust.

Higgs said one of the most interesting findings was the sheer numbers involved: with 5.98 million small businesses run by 5.6 million people.

Of these, 67 percent have no employees other than the owner, 27 percent employ fewer than five people and 6 percent provide work for five or more people. By definition, a small business employs fewer than 200 people.

Almost 80 percent report sales as their main activity and the balance provide services. Of those in retail, almost half add no value to the products sold. “These basic businesses are not profit driven and do not have good margins,” Higgs said.

About a third add some value by repackaging, cooking, making clothes or growing and selling fruit and vegetables.

Services provided by small businesses include daycare, mechanical repairs, car washing and payphone booths, while 5 percent of them provide professional services as doctors, lawyers or architects.

Higgs said there was a direct link between value added by a business and it employing more people. “Once you hit four or five employees the nature of the business changes and added value increases.”

But Nikki Viljoen, an internal auditor and business administration specialist who runs her own company assisting small businesses, Viljoen Consulting, said employing more people was often when a small business failed, as owners were not aware that policies and controls needed to be put in place to ensure things were done correctly and consistently.

Likewise, she warned that small businesses fell short if they grew too fast and did not put in place infrastructure for compliance, administration and human resources.

The survey shows two thirds of small business owners have not completed secondary school, more than half are between 35 and 59 years old and 65 percent used their own sources of money to start up these enterprises, which on average is R900. This includes savings, salaries, retrenchment packages, government grants or stokvel payouts. Those who did borrow did so mostly from friends and family.