Global Entrepreneurship Congress cavalcade rolls into town

Last week the Global Entrepreneurship Congress cavalcade descended on South Africa, making a two-city stop in Johannesburg and Cape Town. Billed as the biggest entrepreneurship get-together of its kind, it reportedly attracted 7 000 delegates from 160 countries. Judging by the variety of attires I brushed past in the Sandton Convention Centre over the two days I attended that was hardly an exaggeration.

GEC is one of several initiatives and programmes of the Global Entrepreneurship Network, including Global Entrepreneurship Week, the Global Entrepreneurship Index, the Global Business Angels Network and Start Up Nations, “aimed at creating one global entrepreneurial ecosystem”.

Deputy President Cyril Ramaphosa gave the keynote address, while Mayor of Johannesburg Herman Mashaba welcomed us all to the host city, giving a taster of how he intends transforming Johannesburg into an entrepreneurial powerhouse.

The very up-beat atmosphere was enhanced by a full programme of speakers and workshops featuring luminaries in entrepreneurship from all over the world. If some of SA’s big names were missing it was only because of the high quality of the international competition, such is the GEN’s deep reach into the ecosystem it is helping create.

With the mornings taken up with plenaries, and afternoons offering over 50 parallel sessions, delegates were spoiled for choice, not forgetting the exhibition where 130 businesses and organisations invited us to share their stories.

So for a single visitor such as me it is impossible to convey the totality of learning experiences on offer. Rather I will share some insights from the sessions I attended, focusing on the major themes that emerged which formed discussion points during lunch and over coffee breaks.

Data is the new oil

The congress theme was digital disruption so a disproportionate number of presentations focused on the 4^th industrial revolution’s impact on society and business.  This was summed up in the pithy phrase “data is the new oil”, by Arvind Gupta (no relation!), head and co-founder of the Digital India Foundation. While oil powered the 20^th century, data will be the basic commodity of the 21^st century. Oil became fuel for cars, trains and aeroplanes, but also spawned petro-chemicals, plastics and other building blocks of the industrial economy.

Data is the new raw material in the economy of abundance but we are only beginning to understand how to value to it. In the cyber-economy information wants to be free (to the serious detriment of traditional media), and most people trade in data, not stuff. But as we are seeing, the fruits of digital disruption are not shared equally, with the marginalised and less well-educated missing out.

A core problem in the data economy is establishing trust between parties to an exchange. In the cyber world, how do you know who you are communicating or doing business with if you can’t see, hear or touch them? This is why biometrics, which mimic unique human characteristics, is so central to building the data economy – ask Serge Belamant!

Innovation as a public good

What should the state provide and what should individuals or private companies provide for themselves? We normally think of public goods as roads, schools, hospitals, pensions etc. But following on the data as oil theme, communication networks are our canals, roads and railways of yesteryear. Not only should the state be building our information highways, they should be subsidising innovation. Pioneers create positive externalities for others in the entrepreneurial ecosystem so to stimulate early-stage entrepreneurship a canny state will reduce the costs and barriers so easing flow and building networks.

Traditional methods of stimulating entrepreneurship are not working

According to Victor Hwang of the Kauffman Foundation, the prime-mover behind GEN, twenty years ago methods to stimulate entrepreneurship included more capital, technology, tech training, accelerators and policy incentives. Today, the focus is on connectivity, trust, immersive learning, diversity and community building.

Instead of efforts to grow the fruit of the entrepreneurial tree we should tend to the root structure by concentrating on people and culture – the soft stuff. Kauffman advocates we do this in three ways – through peer-based, project-based entrepreneurial learning with hands-on teams in free networked communities; building entrepreneurial clusters, not just individual entrepreneurs; and levelling the playing field – big companies and market incumbents have all the advantages, so we need to give new-comers a chance to compete. We need to be building entrepreneurial not production mind-sets.

The Total Early-Stage Entrepreneurial Activity Rate (TEA) is a misleading indicator of a country’s prosperity – we should instead focus on scale-ups

The TEA rate is one of the main indicators measured by the Global Entrepreneurship Monitor, GEM, a competitor to GEN in the world of measuring entrepreneurs’ contribution to a country’s prosperity.

According to GEM, a high TEA rate correlates with a healthy entrepreneurial national culture. By this measure South Africa does very badly compared to other African countries. GEN’s Global Entrepreneurship Index, on the other hand, suggests that the rate of scale-ups, not start-ups, is a better measure of a country’s prosperity. This latter view was most forcibly expressed by Daniel Eisenberg, Founding Executive Director of the Babson Entrepreneurship Project. There is not a lot of data on scale-ups in SA and Africa so comparisons are elusive.

To Eisenberg, there is a strong negative correlation between the number of start-ups and measures of national prosperity – “the net present value of starting a company is negative”. Government should not discriminate in favour of small firms, as growth is its own incentive. Instead, they should make it easier for them to grow. Scale-ups create more jobs than start-ups. You don’t have to pay people to do things that come naturally. Incentives distort an economy – there are lots of firms in France with 49 employees. More important is for the state to build a good quality of life so entrepreneurs want to live there.

But as Elsie Kanza, Head of Africa at the World Economic Forum pointed out, 90% of Africans are employed in the informal economy where the high levels of start-ups is partly a response to the absence of work opportunities in the formal sector where scale-ups are invariably found. It seems the GEI and GEM are measuring different things and the truth lies somewhere between the two.

Corporates should focus on their own competitiveness vs Corporate Entrepreneurial Responsibility

An equally controversial discussion centred on whether big companies should actively foster and support SMEs for its own sake or should rather focus on becoming more competitive. Ghassan Alsulaiman, Governor of the SME Authority in Saudi Arabia, regards these as mutually reinforcing strategies, coining the phrase Corporate Entrepreneurial Responsibility. Supporting SMEs makes good business sense and growth by acquisition leads to innovation and improved competitiveness.

Unsurprisingly, contrasting views were expressed on both sides, on the one had that in a thriving economy (this begs the question, what makes it thrive?), SMEs naturally tag on to supply opportunities while on the other hand, incumbency favours big companies who should be forced to open up their supply chains to innovative SMEs.

Innovation and technology are synonymous – implications for government

Innovation is the lifeblood of a growing economy and most innovations make use of technology one way or another. Entrepreneurs harness technologies and innovations and commercialise them. At a policy level we need a “whole government” approach, with every ministry contributing systematically to the entrepreneurial ecosystem.

Debates in most countries are now shifting from policies towards coherence and implementation, monitoring and evaluation. In South Africa, our disjointed government and policy space is very evident and a hindrance to building the ecosystem.

Innovation rests with the Department of Science and Technology, while entrepreneurship sits with the Department of Small Business Development. The DSBD only accounts for around 25% of total annual government spending on small business development, with very little in the way of coordination, monitoring or evaluation done by anyone.

The DSBD has made much of the “transversal agreements” it is signing with other departments but there is very little to show for them. The cluster approach to government has also failed to drive a single, over-arching policy towards growing the economy by stimulating entrepreneurs. Much of what the NDP has to say is falling on deaf ears.

Disrupting government means government taking the lead and being open to change

Pichet Durongkaveroj, Minister, Digital Economy and Society in Thailand, described his country’s 4.0 vision saying that government needs to focus so the public and private sectors can move in the same direction. Thailand is deploying e-commerce platforms in 24 000 villages to enable business, logistics, e-buying, e-payments etc, while drastically reducing the regulatory burden. He pointed to similar initiatives in countries as diverse as Rwanda and New Zealand.

Vilja Lubi from the government of Estonia emphasised government must be open to disruption in health, education, transport and all social services to bring them closer the people, reduce costs and improve efficiencies. Again, the key factor of trust came up and I could not help thinking the trust deficit in South Africa is a major barrier to the country moving ahead.

On the topic of automation replacing jobs, the Thailand speaker outlined his government’s approach – education and training; moving people from the informal to the services sector, and focusing on producing new technologies not just consuming them. Again, many lessons for South Africa.

Inclusion and access

Growing an inclusive economy is not just a South African obsession – it’s a policy imperative everywhere. The question is, how to achieve it?

The contrast between heavy and light touch regulatory frameworks highlights South Africa is running against the trend. A key example is its new policy towards mandatory open access networks, which will turn our existing private networks into a state-regulated backbone from which private service providers will buy services and on-sell to customers. This is in contrast to the current voluntary access approach which advocates say encourages competition and innovation.

Alison Gilwald, Executive Director of Research IT Africa, was backed up by John Galligan from Microsoft and Stephen Keptinness from a Kenyan ICT consultancy in her plea for a South African policy rethink. That vital word, trust, loomed large ahead, with Galligan equating access to trust to inclusivity. Data, he said, is like capital – it’s cowardly, it won’t flow where it can’t be trusted, it needs privacy laws and policy certainty to flow freely.

The implication is that South Africa should review its state-driven approach to policy development and rather provide the right incentives, a level, fair and open regulatory environment, enabling the private sector to do things more efficiently and cheaper.

Top policy priorities

The last parallel session I attended involved me in a panel with four other guests. We were asked to speak on our policy priorities for the coming year. I was accompanied by Meredith West, Deputy Staff Director, Senate Committee on Small Business and Entrepreneurship, USA; Irwan Serigar, Secretary General at the Ministry of Finance, Malaysia; Vilja Lubi from the Ministry of Economic Affairs, Estonia; and Ruth Bhengu MP, Chair of the Portfolio Committee on Small Business Development, South Africa. The moderator was Jason Wiens, Policy Director at the Kauffman Foundation.

It was significant that four of us, all excepting Ruth Bhengu, chose regulatory reform as our top priority. The Trump administration is targeting years of regulatory accretion, and claims small business optimism has shot up 26% in the last two months to the highest levels since 2004. Amendments to the Regulatory Flexibility Act will apply a 1-in, 2-out approach, while the Kauffman Foundation’s Zero Barriers initiative is guiding much of new US policy towards business in general.

My Malaysian and Estonian colleagues reiterated the view that a conducive business environment with less red tape was their priority, providing a neat segue for me to introduce the DA’s Red Tape Impact Assessment Bill as our legislative priority. This Bill, written by my colleague Henro Kruger MP, is now in the Committee stage and has the support of most members of the Committee. The ANC will have to squirm and squeal to avoid passing it, but the contribution from Ruth Bhengu to the discussion suggests they will try and side-step the matter.

Instead of focusing on what she described as the “technical” regulatory burden, she referred to the institutional burden, especially the non-availability of land for coops and SMEs, and the mind-set of the financial services industry which she claims holds back investment. As is her wont, the Honourable Bhengu spoke at length, prompting the Estonian gentleman to quip “government should listen more and talk less.”

Conclusion

This seemed a fitting end to a most stimulating and enlightening two days. Rarely have I attended an event where my thinking has been influenced so much by what I heard and who I met. There are so many things I have missed out here – like Caroline Medina from Columbia, pioneering an app to aggregate small farmers selling to mom and pop shops in Bogota; or the contribution from Jarmo Eskelinen on the Future Cities Catapult in Finland and the UK; and the fascinating insights of Victor Twang from the Kauffman Foundation on turning weeds into crops – a metaphor for start-ups in a chaotic, random environment evolving into planned, controlled businesses in a production environment.

Much to think about and ponder on. Is South Africa ready to embrace contemporary approaches or will we stay in the rut of government inefficiency, incompetence and corruption which are anathema to growing our entrepreneurial ecosystem? Taken together with the trust deficit in government-business relations, we have a long way to go.