Less businesses fail

The failure rate for established businesses has dropped in the last year, the Global Entrepreneur Monitor’s (Gem) 2014 global report reveals. There are signs that things are improving, with South Africa’s discontinuance rate having fallen from 4.9% in 2013 to 3.89% last year. This is only slightly above its 2009 level, but still higher than its 2005 level of 2.9%. But it’s still below the discontinuance rates of other efficiency driven economies (which averaged at 4.5%, up from 4.2%).

Things would be far better still, if more South Africans started a businesses, but just as important, is how to ensure that more stick around and not fail. However, there is also bad news with the percentage of adult South Africans involved in starting a business plunging by over a third.

The report, released in February, reveals that the percentage of adults involved in a business less than three-and-a-half years old (the TEA rate) fell to 6.97% last year from a 13-year high of 10.6% in 2013. The fall means South Africa dived from ranked a modest 35 out of 68 countries in 2013, to a worrying 56 out of 69 countries in 2014. This, while the percentage of South African adults running established businesses (firms older than three and a half years) slipped from 2.9% to 2.68%.

South Africa continues to perform below similar efficiency driven economies, where the average early-stage entrepreneurial activity (TEA) rate is 14% of adults, while that of established businesses is 4.5%. When one looks at the TEA rates of different countries and compares these to the GDP per capita in the country, a ‘line of best fit’ shows that South Africa should have a TEA rate in the region of 14%, which, if achieved, would go a long way towards reducing unemployment and alleviating the poverty experienced by much of its population.

This is the 13th year that South Africa has participated in Gem research.

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