In his case study of the impact of the Global Entrepreneurship Monitor (GEM) 2014 Global Report on South Africa’s entrepreneurship policy, Mike Herrington (2015), South Africa GEM Team Leader, says that initially all government agencies launched to promote small business development such as the Small Enterprise Development Agency (SEDA) and the National Youth Development Agency (NYDA) had a “one size fits all” approach. Asked for a recommendation, his team suggested that 2 approaches should be taken: (1) opportunity-driven and (2) necessity-driven entrepreneurship. Later it also actively cooperated with SEDA and other agencies on developing instruments to better address different needs of local entrepreneurs. South Africa’s startup ecosystem could benefit even more if all new entrepreneurship policy projects were consulted with experts.
In addition, Herrington points out that more attention should be paid to education. Studies showed that there is a direct link between the level of education and entrepreneurship: the better society is educated, the more it is involved in entrepreneurial activities. Therefore, having one of the lowest startup rates among other developing countries – only 6%–10% – South Africa needs to revise its education system and offer more training opportunities, especially for the youth due to high unemployment rates. The data from Statistics South Africa (Stats SA) report on labour market dynamics between 2008–2014 show that there was an increase of the number of young people at the working-age: from 18.3 million in 2008 to 19.5 million in 2014. “Over this period, the number of employed youth declined by 467 000 to 6 million, while the number of unemployed increased by 319 000 to 3.4 million”.
Herrington also mentions that South African entrepreneurs need better labour regulations. For example, there are some legal restrictions on dismissal of unproductive employees. In addition, their work could be much easier and more productive if the IT coverage was better and the internet costs were reduced (Herrington in the GEM 2014 Global Report, p. 72–73).
On 10 November 2014, there was launched Startup Nations South Africa, a national startup ecosystem project. In her speech at the official opening ceremony, Lindiwe Zulu, Minister of Small Business Development, identified another need of the local startup ecosystem: “We must consciously strive to build a nation of entrepreneurs and not a nation of job-seekers.” She also stressed that the country needs to develop entrepreneurship culture and closer cooperation at different levels of the ecosystem. In her opinion, this could help to easier solve problems and create a better working environment for entrepreneurs (Pillay, 2014).
In her article “An ecosystem in turmoil: inside South Africa’s startup problems”, published on ventureburn.com, Mich Atagana (2013) also mentions that local entrepreneurs need to cooperate more. Her interview with some local tech specialists shows that one of the biggest challenges which the startup tech community faces is a lack of healthy competition. One of her interviewees reveals that some of his colleagues are “overly protective of their ideas and jealous of others’ success”. However, there are some initiatives to change it. For example, Wesley Lynch, CEO and Founder of Snapplify, promotes the idea of healthy competition in his everyday work: he directs his clients to other tech companies whenever he sees that they can offer a better service. He explains his attitude simply: “Any negative competition is bad.” He also draws attention to competition between Johannesburg and Cape Town. In his opinion, local tech startups should compete at the international level or at least in Africa rather than with each other.
Looking for new investment opportunities for GrowLab and LX Ventures, Jonathan Bixby went on a business trip to South Africa at the end of 2013. He later shared his reflections on Techvibes’ blog. His post (2013) provides some useful insights into the country’s startup ecosystem from the Canadian entrepreneur’s perspective, which could also contribute to the discussion on local startup needs. His visit to Bandwidth Barn in Cape Town gave him the impression that “South Africa has an interesting startup culture.” He notes that some technology projects which he saw there would attract a lot of tech media attention and investments if the were done in North America. However, it is not the case in South Africa. Local entrepreneurs need to work very hard to secure income every month. He also observes that there is not almost any risk capital in a North American sense: it is rather the equivalent of private equity. South African startups can receive funding only if they have a high profit margin or property which could be used as collateral. As a result, the startup ecosystem in the country is developing quite slowly. Bixby suggests that in order to stimulate its growth, local entrepreneurs need a ‘safety net’. It implies that the financial support system – particularly venture fund criteria – should be reviewed.
What else does the South African startup ecosystem need in your opinion? Please share your thoughts.
This text is part of the 2015 Startup Commons Report: Startup Ecosystem in South Africa, introduced last week.
The author of the text is Birute Birgelyte, PR and Communications Trainee at Startup Commons. You are free to re-edit and repost this in your own blog or other use under Creative Commons Attribution 3.0 License terms by giving credit with a link to www.startupcommons.org and the original post. Photo credit: Diriye Amey. The photo was originally published on Flickr. It has been used to illustrate this text under Creative Commons Attribution 2.0 License terms. No changes have been made.
Startup Commons has launched a startup ecosystem report project. It will analyse a few startup ecosystems by continent. Firstly, it will focus on Africa. The first report from the African series is the 2015 Startup Commons Report: Startup Ecosystem in South Africa by Birute Birgelyte.
Report on South Africa in brief
Firstly, it will present the situation of entrepreneurship in the country in a historical context. Then it will analyse different aspects of the local startup ecosystem in 6 sections. The following topics will be discussed: (1) South Africa in the 2014 Global Entrepreneurship Monitor (GEM) ratings, (2) entrepreneurship in the context of South Africa’s economy, (3) international investment in South Africa, (4) investment in South African startups and (5) South Africa’s international cooperation. Finally, the report offers a (6) discussion on the needs of the South African startup ecosystem.
You can download the report from here.
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