Durban 2019 | Ecosystem Snapshots

Stakeholder Insights

Challenges

Youth unemployment: South Africa’s province of KwaZulu-Natal has one of the highest youth unemployment rates in the world[1], with 37% of young people (aged 15-24) unemployed.[2] The Department of Statistics in South Africa cites lack of experience and length of unemployment as factors causing increased vulnerability for South African youth. [3]

Lack of local culture of entrepreneurship: Perceptions of entrepreneurship as a viable career path remain low in Durban. According to surveys by the Global Entrepreneurship Monitor (GEM), 43% of the adult population in South Africa perceive a good opportunity to start a business[4], compared to 70% overall in sub-Saharan Africa[5]. Respondents commonly cited fear of failure as a significant barrier, and while public sector initiatives such as GoDurban and Durban Investment and Promotion have gone a long way to promote Durban as an attractive investment opportunity, the entrepreneurial community remains rather insular, with a limited perception of its potential to scale business outside the city, province or beyond.

Access to information: Entrepreneurs in Durban, especially the large portion that live in outlying townships and rural areas, face significant barriers to accessing information on available finance or non-financial support, as well as market and networking opportunities. Durban, like many ecosystems, lacks a free, comprehensive and up-to-date information platform to access this information, and previous attempts to develop such a platform have not been adequately maintained or updated. This challenge forces entrepreneurs to spend valuable time sourcing information through referrals, word of mouth or increasingly through social media.

Gaps in type of support: Local entrepreneurship support programmes show a bias towards general peer-to-peer mentoring and networking support, with a limited number of programmes offering more technical, sector-specific training. This may be due to a lack of sufficient resources to develop and maintain technical expertise. Corporate engagement in strategic supplier development could help fill this technical gap, but currently remains limited in the local ecosystem.

Nascent early-stage capital markets: Although South Africa as a country has well-developed capital markets, the local ecosystem in Durban has limited financing available that is appropriate for early-stage and growth-seeking entrepreneurs. Though there are a significant number of government grant programmes, these do not provide the sort of growth-oriented capital to crowd in sufficient private investment.

[1] Moodley, J. (2019). High youth unemployment in KZN a worry for all. IOL The Post.

[2] Maluleke, R. (2019). Quarterly Labour Force Survey Q1:2019. Statistics South Africa.

[3] Ibid.

[4] (2018). Global Report 2017/2018. Global Entrepreneurship Monitor.

[5] (2019). The world’s trumpeting Entrepreneurship but South Africa is not listening and responding. Mancosa United Universities.

Opportunities

Low cost of doing business: Relatively inexpensive input costs such as rent, raw materials and labour make Durban an attractive place to establish a business. The Durban business community is relatively small and easy to navigate, especially in regard to government regulatory bodies and support agencies. More broadly, South Africa’s process to start a business appears to be simpler than other countries’, with the number of procedures and number of days required to start a business falling below average among the Africa’s top consumer markets.[1]

Attractive investment context: According to the World Economic Forum’s 2019 Global Competitiveness Index, South Africa is a “regional financial hub, with well-developed equity, insurance and credit markets.” A Deloitte study highlighted Durban in particular as an attractive destination for investment due to its social environment and good transport and logistics infrastructure[2]. Africa’s largest port city is already home to a booming manufacturing sector, second only in the country to the Gauteng province.

Strong academic institutions: The KwaZulu-Natal province is recognised for its strong academic capabilities. Institutions such as the University of Kwa-Zulu Natal (UKZN) and Durban University of Technology (DUT) are active in supporting new ideas through academic publications and research. These institutions are also proactive in linking with local agencies that specialize in particular sectors.

Collaborative environment: Durban’s entrepreneurial ecosystem support providers are in a strong position to organise and collaborate on efforts to better address the needs of entrepreneurs and potential entrepreneurs. Based on the sample of programmes in this snapshot, it seems feasible to galvanise the ecosystem to tackle some of the most pressing issues preventing entrepreneurship from flourishing.

[1] Schwab, K. (2019). Insight Report: Global Competitiveness Report 2017-2018. World Economic Forum.

[2] Merkofer, P., Rampathy, C. (2016). Driving Investment: Is Durban and KwaZulu-Natal ready? Deloitte.

Recommendations

Increase support for technical skill-building: Many of the key issues prohibiting entrepreneurs’ success in the ecosystem, including the fear of starting a business and confidence/ability when communicating with investors, can be addressed by building technical skills. Combining this with the existing mentorship support that is already available through more than half of the programmes surveyed (68%) can help build confidence, which will reflect in higher levels of entrepreneurial engagement.

Improve access to information: Access to information is the fifth most common impact objective among ecosystem players, with approximately half of programmes surveyed citing this as a facet of their programming. However, lack of access to actionable information remains a barrier to both current and aspiring entrepreneurs, affecting their ability to identify and develop business opportunities. Creating and maintaining a platform that provides up-to-date information on resources available to local entrepreneurs could help address this issue. This may involve leveraging existing national platforms to incorporate a Durban focus, or identifying local partners with the resources to support and implement such an effort.

Increase engagement with corporates: Durban has an increasingly diverse economic landscape, with extensive opportunity for public and private sectors to collaborate. The Durban automotive and maritime sectors are examples of local government working together with the private sector to provide deeper, more strategic support to entrepreneurs and innovators. This model can be expanded. There is room for the private sector to intensify its engagement with the government across sectors to understand key development plans and the role that corporates can play to support entrepreneurial inclusion within these.

Engage investors to support local entrepreneurship: Despite capital being available, very little of it flows to entrepreneurs, particularly in the Durban area. Among innovation-focused ventures specifically, entrepreneurs face difficulties communicating their new ideas to investors without having previously established a relationship. Additionally, while available capital appears to be suited for entrepreneurs, in reality the deal sizes are typically out of range for most start-ups.[1] Creating a line of communication where entrepreneurs and support programmes can better understand the expectations of investors and further tailor support services to prepare entrepreneurs accordingly may help improve the flow of funds.

[1] (2019). The State of the Sector: 2018 Report. Aspen Network of Development Entrepreneurs.