More innovation is needed in South Africa in order to meet the global demand for world-class products.
Innovation is key. That’s what South Africa can learn from Chile, where something of an entrepreneurship revolution is on the go.
In recent years the South American nation of 17 million has captured the attention of many with its Start-Up Chile programme.
Launched in 2010, it offers entrepreneurs from around the world grants of $40 000 (R415 000), to set up in Chile for one year. Since 2011 the programme has also opened its doors to Chilean participants.
Through the programme the Chilean government aims to convert Chile into a hub for entrepreneurship and innovation.
Up to the end of last year, the programme had received 10 500 applications from 112 countries, with 974 startups having taken part so far.
Although it is not yet clear how successful the programme has been in creating successful local startups, it has been invaluable in attracting significant interest to the country and getting Chileans to focus more on entrepreneurship.
Two years ago, the capital, Santiago, was listed as one of 20 top startup eco-systems in the 2012 Startup Ecosystem Report.
Other countries have also launched programmes to incentivise high-impact entrepreneurs. This has spawned among others Start-up America and Start-up Brazil.
Even before the programme began, change has been brewing in Chile, driven by a growing economy and declining poverty.
Entrepreneurship has bloomed.
Where, in 2006, a similar percentage of Chilean adults were involved in startups as South African adults are today (10% of adults), last year almost a quarter of all Chileans were involved in starting a business.
In all 80% (versus 67% of South Africans) start a firm out of opportunity, rather than necessity, according to the country’s 2012 Gem report.
Like South Africans most are young, averaging 37 years.
However, unlike their counterparts, they are more educated – about a quarter of those starting out are professionals with college graduate degrees, which often means they have better networks and aspirations, notes the report.
Added to this, more adult Chileans than South Africans believe they will employ 20 or more people over the next five years – 3% of Chileans versus 1.1% of South Africans, according to figures from the latest Gem 2013 Global Report, released in January.
It’s clear that a massive entrepreneurial drive is on the go in Chile, backed by a number of pro-entrepreneurial policies such as seed-funding, venture capital and incubators (most of them linked with universities) to assist high-growth entrepreneurs with new ideas.
Key also has been partnerships. Through private-sector contributions Corfo, the Chilean government’s development agency, was able to treble available funds to lend to and assist business owners, and reach almost three times more beneficiaries in 2013 than in 2009.
The focus on innovation has also led to various improvements.
Last year the Chilean government launched an online portal which allows business owners to register a business in just one day, cutting Chile’s registration time from the present five days.
Chile has also enacted easier measures to allow for easier liquidation proceedings when closing a business.
One of South Africa’s biggest challenges is its business failure rate – which remains one of the highest.
This points to why South Africa has such a low number of adults running businesses older than three and a half years (Gem’s definition for established firms). Just 2.9% of adults in South Africans run established firms, compared to 8% of Chileans.
In South Africa just one fifth of business owners operate established firms – in Chile the figure is a little better at a quarter, but still below the average of 36% for emerging economies.
A key shortfall cited by experts in last year’s Gem report is the lack of research and development transfer among small businesses in South Africa.
South Africa doesn’t have enough entrepreneurs with new ideas for products and services.
If they are to survive and thrive business owners must become more innovative – by offering a new product or service that will help solve any one of a number of pressing problems in society.
In this, a better education system as well as faster and cheaper internet would also help, as would better linkages between universities, industry and the government.
There are signs that things are improving. The number of university enrollments have doubled since 1994, and although far from satisfactory, the education system has made small improvements, as demonstrated by the recent Annual National Assessments.
The government and private sector have also begun setting up incubators at universities and colleges.
Yet more needs to be done to inculcate innovation into everything the country does.
Like this South Africa will be better positioned to offer world-class products to meet global demand.
Neglecting to do so will leave the door open for others like Chile to step in.