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The start-up ecosystem in South Africa

The South African entrepreneurial ecosystem is growing but there are aspects which limit it from reaching its full potential. When you consider a country’s business ecosystem, you are concerned with its macro-economic stability, infrastructure, education, labour market efficiency, technological readiness and market size.

These influence how well entrepreneurs will succeed in a country. According to a report by the Global Entrepreneurship Monitor (GEM), South Africa’s start-up ecosystem is mediocre. These are three reasons why:

Government policies and initiatives

Even though South Africa has many policies and initiatives that help entrepreneurs to start and grow small business, they are sometimes not managed or marketed well. This discourages people from becoming entrepreneurs. Another limitation on entrepreneurs is the time and effort it takes to start companies or get licenses to run businesses. These also discourage outside investors.

Education

In South Africa, the education system is poor even though it has improved in recent years, according to the GEM report. South African youth are ill-prepared for the working environment and many are unemployable because of the lack of skills they possess when they matriculate. Education needs to be a critical government focus to help grow a sustainable ecosystem within South Africa. By improving maths and science literacy we will be able to continue to participate in the knowledge ecosystems of the world.

Access to funding

South Africa ranks as the best country for funding in Africa. There are also many subsidies by government in this regard. The only barrier is the conditions of the subsidies, which cause a large segment of potential entrepreneurs to miss out on this funding for SMMEs.

Even amongst these challenges there are two local ecosystems which are thriving:

Cape Town

Though Cape Town is one of South Africa’s top tourist destinations, it is getting a new status, namely as Africa’s prime locale for a start-up. With its good academic institutions, moderate living standards and friendly people, a lot of top talent is moving to the “Silicone Cape”.

This city is home to the most IT-based companies in South Africa and has 700-1200 active tech start-ups. One of the key drivers to the local ecosystem is that it is home to the most mature funding area in Africa. Most of the seeding funding in Cape Town comes from angel investors.

In the future, the entrepreneurial ecosystem leaders have acknowledged a need for more growth capital and collaboration among the stakeholders in South Africa. This may involve more industry-specific accelerators and incubators in South Africa.

Cape Town is an emerging city, which needs to tap into the global ecosystem and its fluid exchange of resources. Nonetheless, with its above average start-up experience, low cost of engineering talent, and solid funding compared to the other cities in the region, it is set to strengthen in future years.

Johannesburg

This City of Gold has become one of the main technological innovation hubs in the region, home to 200-500 active start-ups. There were more than 180 start-up events last year and the city’s combined financial resources have given funding of almost $252 million to its most promising companies.

The University of the Witwatersrand has tried to cement Johannesburg as the leading digital cluster in Africa by creating the Tshimologong Digital Innovation Precinct. This incubator not only offers job creation, skills development and funding, but it also promotes the regeneration of Johannesburg’s inner city.

In comparison to cities in the developed world, Johannesburg has some challenges like relative lack of start-up experience, funding and global connectedness. However, the average valuation of local start-ups is outperforming even with these challenges.

Furthermore, the trials are being actively tackled by leadership in Johannesburg.  This could be seen when Johannesburg was the first African city to host the 2017 Global Entrepreneurship Congress. This event allowed local entrepreneurs to meet and exchange ideas with international leaders, and enhance their knowledge of the key requirements for building globally scalable technologies.

Even though the entrepreneurial ecosystem is influenced by some obstacles, it has a promising future. So, take up the challenge, and start a small business today.

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