Time for SA to adopt an entrepreneurial orientation strategy
All the funding and risk-taking in the world may not be enough if South Africans lack the basic foundations in education to set them up to be successful
associated with the generation and exploitation of knowledge is critical for economic growth for both rich and poor countries.Importantly, scholars highlight the significance of strategic entrepreneurship in diffusing this know-how and fostering transformative economic growth that can reduce poverty. In fact, in scholarly work I have done with Kalu Ojah we show that countries that rely on the strategic creation, appropriation and, most importantly, the risky diffusion of new product knowledge, that is EO, grow faster and more sustainably than countries that rely on exogenous luck (natural resources).
Therefore, if a poor country like SA wishes to foster economic growth and development its firms will have to master new methods of production, introduce new goods and services and conquer new markets. The production knowledge stock will have to be augmented. Yet we have been lacking in this regard. Mining is a prime example here, with techniques hardly evolving in recent years, potentially hampering productive capacity.
To change this, productivity-enhancing high growth entrepreneurs and entrepreneurial firms need to be encouraged and enabled to proactively appropriate technology they did not create, innovate, and take more risks to diffuse their newly acquired capabilities, especially in tradable sectors. The opportunities right now, especially in the transition to a green economy, agriculture, mining, manufacturing, healthcare as well as in tradable services, are significant. headtopics.com
But this is easier said than done as many large businesses that are the repositories of the countries’ human and financial capital base are risk-averse or are shifting funds offshore and cutting investment and innovation expenditures in SA. Moreover, with the dysfunctional, parasitic banking system seemingly focused on loan sharking, and a small venture capital sector, high-growth entrepreneurs struggle to access funding. This is undoubtedly a key factor contributing to the low levels
of EO and consequently, the low diffusion of new product knowledge in the country.Improving the allocative ability of the private sector and the financial system, is therefore an important starting point. One way of doing this may be to accelerate transformation in boardrooms and C-suites of corporate SA. Perhaps, more diverse boards may see less risk and show higher commitment to SA, than the current leadership who seem to mistakenly deem developed Australia a better investment prospect than developing SA.
Another way may be to allow more specialist banks to operate and compete for clients taking on idiosyncratic risks by supporting industry niches. We currently have five or so major banks, but there is no reason we cannot have at least 400-500 specialised banks. For instance, the US has over
5,000 commercial banks and savings institutions that are the foundation of the entrepreneurial spirit that exists in that country today.Lastly, we may have to be more deliberate in supporting the development of a venture capital ecosystem that will allocate capital to risky productivity-enhancing investments, rather than say focus on loan sharking, as our banking system seems to be doing. headtopics.com
However, all the funding and risk-taking in the world may not be enough if South Africans lack the basic foundations in education to set them up to be successful. In previous research we have demonstrated that education is a robust predictor of EO, especially at the secondary school level. Therefore, it is fundamental for fostering entrepreneurship and establishing an inclusive economy.
However, human capital is not merely education. So, the same applies to the healthcare system. Increasing access to quality healthcare has the potential to expand access to economic opportunities since healthier adults are better equipped to participate in the economy.
But, despite liberal spending on education and healthcare since 1994, these systems remain broadly dysfunctional. It is not an exaggeration to say that the apartheid Bantu education system, which deprived black people access to the same educational opportunities and resources enjoyed by their white peers, has not been completely dismantled.
A stronger focus on nutritional support may also help improve education outcomes. A hungry or malnourished child will always struggle to learn and progress through the system. So, while the government school nutrition programme provides over nine-million pupils with meals every day at school and this has somewhat helped alleviate hunger, its reach is still not far and wide and deep enough. The broader social security system needs to be overhauled with child welfare as a top priority. headtopics.com
It seems an obvious point, but a country’s strength is founded on its human capital, and the MEC strategy deliberately discouraged investment in human capital. For SA to successfully execute an EO strategy, the development people of SA will need all the help they can get to reach their full potential.
The government is running out of time to fix this. It has to implement key reforms to get the majority of black people out of poverty and build a much more inclusive and equal society at peace with itself. The euphoria we saw in 1994 is slowly fading and being replaced by a sense of foreboding. Urgent action is required to halt the slide.
• Dr Mthanti, a senior lecturer at the University of Cape Town Graduate School of Business, is a Professional Risk Manager charter holder.Would you like to comment on this article or view other readers' comments? Read more: Business Day »
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