If the government is serious about developing an entrepreneurial culture, then its employment equity policy must go, says Nazeem Martin, MD of Business Partners, whose funding record in the small and medium business sector has caught the eye of the UN. "There must be a sunset clause for it," he says. "We need to set a deadline beyond which we will no longer do it."Martin addressed the UN in New York last year on its funding model for entrepreneurs and has just returned from addressing a UN conference in Addis Ababa on what needs to be done to develop the small and medium enterprise sector in Africa.Among the participants were senior government officials from South Africa, which continues to underperform its peers in the development of entrepreneurs.According to a report by the Global Entrepreneurship Monitor, South Africa produces fewer entrepreneurs than any country of comparable development."We don't celebrate entrepreneurship," says Martin. "It is not the chosen career of those with skills. It is resorted to as a last option, out of desperation.story_article_left1"We have too few people who are opportunity-seeking entrepreneurs. Too many become entrepreneurs by default because they have no other choices."He blames government policies, particularly employment equity, which have created a culture of entitlement and expectation."If I were a young black South African I would never become an entrepreneur, because as long as corporate South Africa is looking to address employment equity quotas I can get a nice fancy job working for Anglo American or any number of other big corporates."I can have a nice fancy office, probably work seven or eight hours a day, drive a fancy car, play golf a couple of days a week - compare that to being an entrepreneur, where you're on call 24 hours of the day."Far from being encouraged, those who resist the seductions of a protected and well-remunerated corporate environment to be entrepreneurs face "a proliferation of policies, regulations and laws they have to comply with", says Martin."It's not only the financial cost of compliance but the effort and energy and time it takes you to comply."Reports on international competitiveness regularly place South Africa near the bottom when it comes to ease of doing business.block_quotes_start You try an idea, and if it works, great, if it doesn't, you pick yourself up and try the next one block_quotes_end"It is significantly more onerous to set up a business in South Africa against other countries at the same level of economic development," he says.South Africa needs to learn from the US, he says. One of the reasons its economy is so robust and resilient is the strong culture of entrepreneurship. Instead of being penalised, entrepreneurs are applauded and given every possible advantage."Being an entrepreneur is worn like a badge of honour."Failure is not seen as a train smash as in South Africa."In fact, if you have failed you're more likely to get funding when you apply for it the second time, because if you've failed it means you've learnt something.story_article_right2"In South Africa, financiers will look at you if you've failed and run a mile. But failure is part of the free-market system that you try an idea, and if it works, great, if it doesn't, you pick yourself up and try the next one."Labour laws in the US encourage entrepreneurship; in South Africa they do the opposite."We have great labour legislation in this country, but it's too sophisticated for our level of development."It's absurd to expect small businesses to comply with the same labour legislation and regulations and collective bargaining agreements entered into by big business and labour."In the US, if someone doesn't perform, he is fired and someone else hired in his place."Here, it's a lengthy and costly process. So if you've hired somebody and you've made a mistake, it is very hard to correct that mistake." As a result, there's an incentive not to hire, which is disastrous for job creation.Martin believes the government understands the need for change but he doesn't think it will happen any time soon. "They have political agendas they have to conform with."Business Partners was started by one of South Africa's greatest entrepreneurs, Anton Rupert, and his son Johann in the '80s as the Small Business Development Corporation.It has been run by Martin, 53, since 1998. He grew up on the Cape Flats, matriculated at South Peninsula High, studied geography and economics at the University of Cape Town, taught at Harold Cressy High and won a scholarship to the US, where he obtained a master's in urban planning.story_article_left3He returned to work for the Urban Foundation, where he drafted policy proposals for a post-apartheid South Africa. He was deputy director-general of public works in the Mandela government before joining Old Mutual as a property investment analyst and asset manager.He was head-hunted by Business Partners, which put him through an advanced management programme at Harvard and made him the boss.The company does between 300 and 700 financing transactions a year, most of them to support businesses that are up and running. It finances between 40 and 60 start-ups a year. A quarter of these fail, which is considerably better than the average failure rate, which is 70%.He ascribes this to careful selection, mentoring and monitoring.But doing what they do is not for the fainthearted."Everybody has a lot to say about SMEs - the president, cabinet ministers, academics - but backing them is risky and labour-intensive."Most businesses that start off funding entrepreneurs soon realise there is easier and considerably more money to be made financing bigger deals higher up the food chain, he says.Business Partners was asked by the UN to roll out its funding model in other African countries, which it has been doing for the best part of 10 years, with mixed results."We have learnt that our model cannot work where there is political instability, where the rule of law is not taken seriously, where there is political influence over the judiciary and where there is no respect for private property."He says he is "still optimistic" that South Africa will not go down this road.sub_head_start What Business Partners seeks in an entrepreneur sub_head_endBefore loosening the purse strings, Business Partners requires a solid business plan and cash flow viability.It doesn't need a track record, but it does assess technical and managerial skills, integrity and commitment."Businesses don't happen, people make them happen," says Martin.It requires collateral more as a sign of commitment than to reduce its losses if the business fails. The company's return on investment is typically prime plus 7%."We want a person who is going to eat, drink and sleep this business. They must know that they have something to lose if it doesn't work. It makes them apply their minds much better."If you provide them with funding and they have nothing to lose, then on the day you write them the cheque, make another entry in your book under provision for bad debt, because it is going to happen."The reason most SME-funding by government institutions is wasted is that they are "overoptimistic with regard to the capabilities of the entrepreneurs they finance, and their integrity and willingness and desire to repay the money they've borrowed", he says.The sectors that excite him most are real estate, private education, agro-processing, just-in-time manufacturers of designer clothes for niche markets unthreatened by cheap Chinese imports, and renewable energy.To take one of the more interesting examples in this sector, it funded an entrepreneur who runs a hydroelectric power plant at Clanwilliam Dam, which provides electricity to farmers and the local municipality.Business Partners has an education fund for entrepreneurs wanting to start low-fee private schools. It is currently financing 22 such businesses. ..