Country & City Insights

Endeavor and FNB release report on entrepreneurship in South Africa

Endeavor South Africa and First National Bank of South Africa have released the second edition of “Entrepreneurial Dialogues: The State of Entrepreneurship in South Africa [PDF].”

Entrepreneurial activity in South Africa still lags significantly behind many comparable countries. South Africa’s Total Entrepreneurial Activity (TEA) has dropped to just 5% which is less than half of India, Brazil and Mexico. The newly-released whitepaper, which follows up on the first edition published in May 2010, stemmed from an FNB-Endeavor conference held in November 2010, which was attended by a variety of policy makers, entrepreneurs, academics, and funders. There, the participants discussed key issues facing entrepreneurship in six key sectors of the economy: mining, manufacturing & energy; fashion and clothing; professional services (e.g., finance, insurance); IT & biotech; tourism & hospitality; and agri-business.

Among other insights, the paper highlights a difference in outlooks among VC communities in South Africa and in other markets — for instance, in the U.S., VCs tend to search for companies with the potential for explosive growth, whereas VCs in South Africa tend to search for companies that already show explosive growth. As Endeavor VentureCorps member and Silicon Valley veteran David Frazee points out, in the U.S. the attitude is “the bigger the risk, the bigger the upside.”

The paper also states that if we accept the reality that about 70% of new businesses fail, it is understandable that banks may be wary to lend to these businesses — and thus, funding solutions must be sought outside the traditional banking sector.

Issues such as access to skills and technology are also highlighted. For instance, in the Agri-Business sector, the ‘brain drain’ of experienced farmers is cited as a major challenge: “Farmers with accumulated knowledge are moving to other African countries…and even Eastern European countries.”

South African entrepreneurs in the Mining industry, meanwhile, are urged to focus on increasing and transforming their output. Further, it is asserted that while the country’s large untapped resources are controlled by a few large players, opportunities exist for smaller entrepreneurs to compete at the upstream stages of the value chain.

South Africa’s hosting of the 2010 FIFA World Cup for soccer is mentioned for its contribution to raising the country’s tourism profile. The paper suggests there is an opportunity for South Africa to further define an authentic national “brand.”

According to Kirsty Davis, CEO of FNB Business Banking, the whitepaper is intended to “not only understand the challenges facing South African entrepreneurs, but also to develop real solutions and support in the various sectors.”

Says Malik Fal, Managing Director of Endeavor South Africa: “Together with FNB, it is our hope that the second edition of this paper will achieve its objectives of creating a useful collaborative platform for South Africans who are interested in enhancing the level of entrepreneurial activity in the country.”

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