One of the big promises from India ahead of August’s 15th Brics Summit in Sandton, South Africa, was the launch of a Brics start-up forum. India’s President Narendra Modi was upbeat about that country’s success in improving its ease of doing business and how it had “replaced red tape with red carpet for investors”.
When the Brics Summit wrapped, there was no mention of a new start-up forum, which had been touted as an opportunity to learn from India’s successes, streamline collaboration and share best practices. Instead, the big news was the inclusion of Argentina, Egypt, Ethiopia, Iran, Saudi Arabia and the United Arab Emirates in the bloc from 1 January 2024. A Brics currency, alternative payment systems and a more constructive role by global institutions featured strongly, as did finding ways to champion growth in the developing world.
Based on feedback from Standard Bank CEO Sim Tshabalala, who reported on the deliberations of the Brics Business Council, small business development was also not forgotten.
“The theme of entrepreneurship featured strongly,” recounted Tshabalala. “A vibrant SME sector is often the most efficient way to create jobs and some SMEs become unicorns and even mighty multinationals such as BYD and Tencent of China.” It was hoped that by “opening up market access to entrepreneurs across all Brics,” entrepreneurs in the bloc would have “an exciting opportunity to foster trade and job creation”.
Tshabalala noted the attraction of sectors such as fintech, which were “an area in which Brics countries have already established a great deal of expertise and success”. This includes the likes of South Africa’s digital-only retail bank TymeBank, banking service platform Jumo and card payment provider Yoco.
However, to fully benefit from this promise of market access to an expanded bloc of 3.7 billion by 2024, Tshabalala reinforced that visa regimes and travel links needed to be strong, and general business, financial, and education systems robust.
How does SA stack up?
With frailties in its ecosystem infrastructure, South Africa tends to show up quite badly in the Global Entrepreneurship Monitor (GEM). However, the promise of better access to markets could be just the fillip needed to boost entrepreneurial involvement, which in 2022-23 sat at 8.5% of adults who were starting or running a new business, down from 17.5% in 2021 and 10.8% in 2019. In the wake of Covid-19, those owning or managing an established business which had been operating for at least three-and-a-half years was 1.8%, from 5.2% previously.
By way of comparison, Russia’s total early-stage entrepreneurial activity (TEA) in 2021 was 8.3% and established business ownership was 3.4% (there was no data for 2022). Brazil scored higher at 20% TEA in 2022 (21% in 2021) and established ownership at 10.4% (10%: 2021). India had a TEA of 11.5% in 2022 versus 14.4% in 2021, and established business ownership of 9% in 2022 vs 8.5% in 2021. There was no GEM data on China.
However, according to Professor Jonathan Marks, an expert in high-growth entrepreneurship and corporate innovation, dry figures don’t always marry with the perception of people on the ground who see the informal business buzz that GEM isn’t counting. This measurement challenge is also likely to apply to many of South Africa’s Brics peers, where not all businesses are formally recorded.
“If you look at Brazil and India, I think there would be some commonalities,” says Marks, noting that these economies are also grappling with their own set of structural problems. Instead of load-shedding in South Africa, consider red tape and rising poverty in Brazil and outdated colonial systems and property ownership rights in India. Just like South Africa, people get used to these challenges, normalise them and keep going if they spot potential opportunities.
Exploiting a gap was exactly what Russia did in the early 2010s when it created, by law, the Skolkovo Foundation to help internationalise Russian innovations and spur on entrepreneurship. This, as well as having a population where 53% have university education and can benefit from a relatively free state grant system, saw the emergence of a thriving tech start-up ecosystem. However, following the invasion of Ukraine, and with sanctions biting, Russia today clearly isn’t the role model some thought it might be. In fact, Dubai is now reportedly attracting Russian entrepreneurs and start-ups looking to exit the instability in their country.
“It actually started with IT companies, software companies, but now we see all types of companies – art galleries, resale, and trade of spare parts,” Jochen Knecht, CEO of Dubai’s International Free Zone Authority, told France24. “They are coming with employees, requiring office space and warehouses.”
This is causing Russia to lose ground as a start-up ecosystem. From a ranking of 17th in 2021 by StartupBlink, by 2023 Russia was at 29 and out of the global top 20. Moscow, once ranked as the second-best city in Europe for start-up ecosystem development, has also dropped out of the top 10 start-up-friendly cities, although it still ranks 10th globally for edtech.
It would, noted Professor Marks, be remarkable if Russia had maintained its entrepreneurial momentum in light of these geopolitical challenges and ongoing sanctions. “Russia has a command-and-control economy, it’s a country at war and it’s a country that isn’t liked … so I can’t see a bubbling up of the kinds of entrepreneur you would find in well-functioning economies.”
The grit to keep going
An interesting observation from the Global Startup Ecosystem Index 2023 is that “some of the world’s most successful start-ups were born when easy funding was not available”. Without downplaying the importance of ensuring entrepreneurial ecosystems are conducive to building start-ups, Marks agrees that even in challenging situations entrepreneurs will find a way to succeed.
“I sense that entrepreneurship itself is something that just bubbles up. It gives people a sense of meaning, a sense of purpose and a sense of hope,” he says. “Maybe in environments that are generally quite difficult, people do turn to entrepreneurship. After all, countries that have a high human development index tend to have low levels of entrepreneurship because people think they will be sucked up by the formal economy, so why start a business? The opposite is also true. Where you either have a low or declining human development index, there is probably a move towards entrepreneurship. Even during the darkest days of the Cold War, people found a way to make a living.”
This is certainly the case with current-day Russia, which the StartupBlink report notes is moving towards “building a national ecosystem with fewer connections to the world. We have also seen more innovation being focused on regional markets and not globally”.
The implications of this shift for South Africa, and the Brics bloc, will be interesting to watch.
Start-up ecosystems to watch
The 2023 Global Startup Ecosystem Report is produced using an algorithm that scours data points from over 1 000 cities and 100 countries. It’s the brainchild of StartupBlink, a start-up-focused business intelligence firm.
With a keen focus on entrepreneurship ecosystem development and fostering innovation, StartupBlink CEO Eli David notes that, governments “understand that a great start-up ecosystem is a future engine of economic growth and that the government should take an active role in supporting the growth of their start-ups”.
Without a doubt the United States stands head and shoulders above its closest rivals, the United Kingdom and Israel (see Figure 2).
Of the 10 most start-up-friendly cities in the world, four are in the United States: San Francisco, New York, Los Angeles and Boston. Of the Brics nations, two Chinese cities makes the top 10 – Beijing and Shanghai – with Bangalore in India at number eight. No South African city features in the top 100 (see Figure 3).
Lessons to be learned?
While benchmarking South Africa against the rest of Brics is convenient, Professor Jonathan Marks would rather the country applies itself to really considering which other emerging economies it could use as a baseline.
“Maybe India, because I think India is a very enterprising nation,” he says. “My sense – and it’s more anecdotal than anything, having visited India before – is that India has a much longer tradition of small business and an ethos around business. People consider entrepreneurship as a viable job choice.”
He is less certain about drawing lessons from Russia and China and notes that “Brazil doesn’t have the best track record with rule of law. So, I’m not sure Brics is who we should be cosying up to.”
Instead, Marks believes there are some great examples from the rest of the African continent that South Africa should be looking to for effective strategies and approaches. These include Kenya, Morocco and new Brics entrant Egypt. “Kenya is, in many ways, better than we are from an entrepreneurial point of view, while Morocco and Egypt seem to be coming into their own. I think Egypt is outperforming us,” he says.
Looking to Latin America, Marks feels Mexico would be a good economy to watch and, in some cases, emulate. “Mexico would be interesting. It’s a pretty well-developed economy in certain ways and I think it gets a bad rap, because it functions pretty well,” he says.
Understanding the current dilemma
- Trade opportunities from Brics market access could be a boost to businesses and entrepreneurs across the bloc.
- With six new Brics+ members joining in 2024, South Africa needs to create an enabling entrepreneurial marketplace.
- Cities in China and India have featured in the top start-up locations for 2023, but only China features in the top 10 nations.
- India has been touting its successes in replacing red tape with a red carpet for investors.
- Russia’s past performance as a tech-savvy start-up destination has been impacted negatively by its invasion of Ukraine.
- Where should South Africa turn for inspiration?
