Lighting the entrepreneurial fuse
All the elements needed to create a positive ecosystem for entrepreneurs to succeed in Africa exist; they simply need to be actioned.
Of the many and varied repercussions of the 2007–08 financial crisis, one that rippled across borders to impact both developed and developing economies was rising unemployment, an issue that affected young people, in particular. Youth unemployment can easily lead to the creation of a ‘lost generation’ of people without experience, who eventually become completely unemployable.
This can be disastrous for a country, and encouraging entrepreneurship is the obvious response to rising youth unemployment. After all, entrepreneurs serve as generators of jobs, supporters of local communities and pivotal components of prosperous societies. Young entrepreneurs are of particular importance, as they brim with potential and energy and theirs are activities — if nurtured and supported correctly — that can lead to meteoric growth, job creation and societal success. The real question then is: how can these entrepreneurs, together with corporations and government, find the common ground required to turn entrepreneurial potential into true economic growth?
Jim Deiotte, Head of Tax for EY Africa, says that finding ways to stimulate entrepreneurship is the neutral ground upon which the generally adversarial relationship between tax authorities and tax payers can be turned into a common cause to stimulate business creation while simplifying tax rules and regulations.
Chairing a panel on the topic “Building a better working world in Africa through entrepreneurship” at the EY Africa Tax Conference 2014, Deiotte told delegates that the entrepreneurial ecosystem has five pillars. The first of these is access to funding. When 73% of young entrepreneurs say that access to funding is severely limited, it is imperative that new platforms for funding must be created.
“Coordinated support is also important, through a range of networks, incubators and mentors. There are some 150 incubators in Johannesburg alone, but very few talk to one another – better communication between these entities clearly needs to be facilitated.”
Education and training, along with more business-friendly tax regulations are two other vital pillars in stimulating entrepreneurship, continued Deiotte.
“The final pillar is that of entrepreneurial culture. There is a fear of failure that can be reduced by eliminating the stigma around bankruptcy. We need to encourage youngsters to consider entrepreneurship as a career choice and to instil a positive attitude towards risk.”
The imperatives for action include expanding the choice of funding alternatives, an area where both government and large organisations have a role to play; increasing mentoring and creating a broader support structure to enable youngsters to access the knowledge, opportunities and resources they need; and a more supportive entrepreneurial culture where government does more to promote entrepreneurs as crucial job creators and supports education, funding and profile-raising to improve perceptions of small business.
Panel member at the conference, Allon Raiz, CEO for Raizcorp commented that SMEs still need to define a compelling economic reason for their existence. Unless they can differentiate themselves, they have no real right to seek funding.
In addition funding itself can sometimes be a handicap. If the money comes in at the wrong time, such as before the business model or the mental paradigm is where it needs to be, the money can be used badly and end up causing the business to fail.
“Perhaps most crucially in the context of this conference, over half of all young entrepreneurs believe that reducing red tape and excessive taxation is vital to their success,” said Deiotte.
This would seem logical, since younger entrants into the market are likely to struggle to get to grips with systems designed for older, more established businesses. Therefore, changes in the regulatory regime that are more favourable to start-ups, and tax and innovation incentives provided by government, are vital to building a strong foundation on which entrepreneurs can build new businesses and contribute towards job creation and the economy.
“There is no doubt that much needs to be understood and actioned if we are to succeed in stimulating growth in entrepreneurship. From providing capital combined with mentorship to delivering alternative means of funding, and from banks creating a new class of loan for small businesses to governments simplifying and streamlining tax administration to ease the burdens on young entrepreneurs, the opportunities to stimulate small business are almost limitless. All the elements for creating a positive ecosystem for entrepreneurs to succeed in Africa exist already – all that is left is for us to grasp these and make them a reality,” concluded Deiotte.
