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Here’s what we can learn from Malaysia’s sudden startup decline

While more Brazilians than ever are starting up new businesses, on the other side of the globe in Malaysia, the number of start-ups has hit rock bottom, shows a new survey. The south-east Asian country’s fall may say something about entrepreneurship.

​The 2015 Global Entrepreneurship Monitor (GEM) survey released last week shows that the number of people starting new businesses climbed in a number of emerging economies last year (see Graph 1) including in South Africa, where it rose from seven precent to 9.2%.

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​The 2015 report represents the 17th year that GEM has tracked entrepreneurship across various countries. The latest report surveyed 60 economies (down from 73 last year).

In Brazil the number of adults involved in early-stage entrepreneurial activity (including in firms of less than three and a half years old) reached an all-time high under GEM statistics, with 21% involved in starting new businesses.

In addition the country’s established business rate (the percentage of adults involved in firms of three-and-a-half years and more) also continues to climb. It stands at 18.9% (see Graph 2). It comes despite the deep economic crisis that began in Brazil in 2014.

Read more: VC to pump $10m into South African, African startups [update]

In South Africa the rate of new firms has climbed to one of the highest ever, in the 14 years that GEM has analysed the country (in 2013 it peaked at 10.6% of all adults).

This however is still below the average early-stage entrepreneurial activity (TEA) rate of 15% of adults in other similar economies.

Malaysian mystery

But among emerging economies Malaysia’s slide in the number of adults involved in starting new firms, is probably the most worrying of all emerging economies.

The decline is even more puzzling, because the country is ranked by GEM experts as one of the most favourable entrepreneurial ecosystems among emerging market economies. It is also ranked high on the World Bank’s Doing Business rankings (at 18th spot) and on the World Economic Forum’s competitiveness index (also at 18th spot).

Read more: PE incubator boasts 25% growth, takes on 10 new tech startups

While like other emerging market economies it has also seen its currency decline in recent months, the economy still grew at a good tick last year (5.4%), far better more than many of its emerging peers.

Foster culture

What it perhaps says is that alone a good business environment based on things such as good infrastructure and human resources and favourable state policies, may not be enough to foster start-ups and entrepreneurship.

Key is that GEM data shows a marked decline in the number of Malaysian adults that view entrepreneurship as a good career choice.

Freedom deficit

Fostering a culture of entrepreneurship then is essential — as is fostering a rights-based society based on freedom of expression.

Malaysia may not be a dictatorship, but politically it is only partly free. It has no free press. Corruption appears to be growing (evident by the country’s recent fall in Transparency’s International’s Corruption Perception Index).

In addition mistrust between the races still lingers, as the government continues with race-based programmes years after independence.

Ultimately entrepreneurship requires not just things like good infrastructure and human resources and a growing market — but freedom and creativity to allow entrepreneurs to flourish. If you stifle these, you’re likely to stifle free enterprise.

Image by Elviz Low via Flickr

This article originally appeared on Small Business Insight, a Burn Media publishing partner, with the headline ‘South Africa hopes to seed new start-ups’. Stephen Timm writes on small business and is presently in Cape Town, South Africa. Click here to sign up to his monthly newsletter. Follow him on Twitter at @Smallbinsight and on Facebook

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