On Thursday, 16 September 2021, startup ecosystem stakeholders will be unveiling the latest findings and plans towards the development of a proposed South African Startup Act – a call to the President to unleash the growth and innovation inherent in the country’s entrepreneurs and youth. These findings, gathered over the past six months via desktop research, focus groups and research contributed by the World Bank (one of the main sponsors of the research), provide a holistic overview of the problems affecting the ability of startups to establish, grow and scale in South Africa.
The findings, which have been collated into a position paper, suggest that innovation-driven start-ups with a turnover of less than R100 million be exempted from the limitations of existing policies and the red-tape that constrains their growth as well as their ability to contribute to job creation. Doing so will accelerate the socio and economic spill over of such startups to the rest of South Africa.
“The vast majority of new small and micro business enterprises that exist beyond the first three years of operations do not grow. Rather, it is the remaining balance comprised of a tiny portion of startups that are responsible for creating a disproportionate number of jobs[i]. Such firms, with their high-growth potential, are the intended beneficiaries of the proposed South African Startup Act,” explains Stephan J Lamprecht, Founder of VS Nova, a Southern African-based management consultancy that has been appointed by the SA Startup Act Steering Committee to provide research and advisory services. The Steering Committee is comprised of representatives from Digital Collective Africa, Endeavor South Africa, i4Policy, Loudhailer, the Southern African Venture Capital and Private Equity Association (SAVCA), Silicon Cape, SiMODiSA, and Wesgro.
Proposed interventions contained in the position paper are premised on the finding that immediate benefits can accrue to job creation, economic transformation and the competitiveness of the South African economy – all mainstays of the National Development Plan (NDP) – if barriers limiting the creation and impact of startups are removed. The findings advocate for a number of relaxations to current legislation and policies impacting on the growth of, and investment into startups, including exchange controls and Capital Gains Tax. Other relaxations include simplifying procurement policies with which to scale up the involvement of startups in the national economy; direct funding of startup businesses through automatic reinvestment of PAYE and VAT; and easing of labour and immigration laws to foster the availability of and access to talent. The findings also support the introduction of incentives to stimulate capital contributions from early-stage funding entities.
Lamprecht explains that between 2013 and 2019, the contribution of small businesses to national Gross Domestic Product (GDP) has increased by almost 40%[ii], eating into the share from large business, which has waned by 9% over the same period. “While the South African startup ecosystem is clearly growing and increasingly contributing to GDP, recent events in KwaZulu-Natal and Gauteng are a stark reminder that the country is at a critical crossroad in so far as socio and economic policy, with national unemployment and the impact of COVID-19 laying bare the failures of not attaining the objectives outlined in the NDP. By remaining slaves to a resource-driven economy, and negating the opportunities embedded in our burgeoning services sectors, South Africa is missing out on the benefits to its economy from startups. The country can ill afford to wait patiently for the eventual trickling down effects from current levels of entrepreneurial activity, especially if these are reduced to organic growth at best. Other African countries such as Tunisia, Senegal and Ghana are prioritising the participation of startups in their economies by introducing Startup Acts, so why shouldn’t South Africa?”
The South African Startup Act sets out to enable economic policy through an amendment or a standalone act. In addition to radically increasing the contribution to and impact on the national GDP by startups, the Act seeks to address the growth objectives outlined in the NDP. It also strives to leverage and grow the existing ecosystem so that more South African startups can become successful locally and globally. And to do this in a way that South African talented youth and entrepreneurs won’t have to relinquish their country ties as a consequence of experiencing startup growth and success.
SiMODISA Vice Chairperson and South African Startup Act Steering Committee chairperson, Matsi Modise, concludes by saying that by removing the constraints that come with operating a South African startup business, the Act will maximise the value and impact of South Africa’s startups and successful entrepreneurs for the benefit of the country and her people. “Ultimately, it is for South Africa, by South Africans.”
The virtual event will explore the proposed interventions and attempt to answer questions such as whether it will take too long to introduce a new Act, how much it will possibly cost, and whether Treasury will allow it.
You can download the positioning paper here: https://we.tl/t-8SspkRfHHs.
[i] Calvino, F., C. Criscuolo and C. Menon (2015), “Cross-country evidence on start-up dynamics”, OECD Science, Technology and Industry Working Papers, 2015/06, OECD Publishing, Paris. Last accessed in July 2021 from http://dx.doi.org/10.1787/5jrxtkb9mxtb-en. More or less 5% of new micro start-ups grow quickly in the first few years, but account for between 21% and 51% of total job creation from the sample group.