The GEN Atlas Country Deep Dive is a monthly exploration of the startup support policy landscape in selected countries, drawing upon entries from the GEN Atlas compendium of entrepreneurship policies. We offer a holistic overview of what each country is providing, identifying success stories, gaps in provision and always looking for insight that can be shared across borders around the world. Our analysis of each nation’s startup support is built around eight overarching themes:
- Finance: New types of capital for startups and scaleups at the right time
- Education + Skills: Embedding enterprise and entrepreneurship into education and providing (both existing and potential) entrepreneurs with mentoring, training and support
- Market Access: Expanding access to markets for startups domestically and abroad
- Inclusivity + Culture: Ensuring that entrepreneurship is a culturally attractive vocation for all sections of society and in particular that people from disadvantaged groups have an equal opportunity to launch and grow a business
- Regulation: Removing regulatory barriers to innovation and startup success
- Ecosystem + Economic Development: Developing and managing local ecosystems to better support entrepreneurs, startups and scale-ups
- Science, Technology and Innovation: Utilizing the latest advancements in science and technology to improve productivity, boost economic growth and solve societal problems through innovation
- Policy Making: Maintaining a data-driven, effective and coherent policy making process that supports entrepreneurs and ensures public awareness of available programs
This edition of the Country Deep Dive looks at South Africa, the recent hosts of GEC+ Africa which gathered entrepreneurs and leaders from more than 50 African Nations.
With its vibrant cultures and youthful population, South Africa is well established as a beacon of entrepreneurial opportunity in the African continent. Blessed with 2 of Africa’s strongest ecosystems in Cape Town and Johannesburg, South Africa has long been considered one of the continent’s “big four” of startup nations alongside Egypt, Kenya and Nigeria. New research finds that South Africa has the second strongest entrepreneurial ecosystem in Africa, underpinned by impressive physical infrastructure and a wide variety of funding opportunities available to startups.
Despite these positive developments, the ecosystem still faces challenges around entrepreneurial culture amongst large sections of the population, a lack of trust in others and weaker networks of professional support for entrepreneurs. That is why the South African government has been highly active in this space, working diligently to foster a supportive and regulatory environment for startups. At the core of this agenda is the National Small Enterprise Development Strategic Framework (NISED), which aims to leverage resources within the broader eco-system behind practical partnerships that enable entrepreneurship and SMME growth.
Crucially, this sustained effort from the South African government is bearing fruit with the contribution of SMMEs to total business turnover growing from 25% to 33% between 2013 and 2021. Likewise, the percentage of the working age population involved in business start-ups in South Africa increased from 6.5% in 2001 to 17.5% in 2021. In addition to this the government has had substantial success in restructuring state procurement policy in favour of SMMEs in sectors such as construction where the contribution of SMMEs has risen from 39% to 63% between 2013 and 2021.
Finance
While access to funding for startups in the early stage of development is often seen as the biggest challenge facing any ecosystem, South Africa can boast that they offer some of the most comprehensive financing programs of any African country. At the core of there approach to finance is the Small Enterprise Finance Agency (Sefa) which is responsible for delivering wholesale and direct lending credit facilities or products, providing credit guarantees to SMMEs and Co-operatives, and supporting the institutional strengthening of financial intermediaries. Since it was established in 2012, Sefa has disbursed more than R15 billion (approx. $790 million) to 642,000 SMMEs, creating and sustaining more than 850 000 jobs. Last year alone over 74,000 SMMEs were supported by their programs.
As well as Sefa, there is a myriad of other options for startups to access state backed streams of capital such as the National Empowerment Fund which has approved transactions of over R23 billion ($1.22 billion) since 2005 leveraging a mix of state funding and streams from private banks and other development finance institutions (DFIs). Likewise, the Department for Small Business Development has directed DFIs to allocate 50% of their financing to SMMEs and is coordinating this via a Fund of Funds.
Education + Skills
With a youth population of over 20.6 million – making up a total of 35.7 percent of the country’s total population – that has a stubbornly high level of unemployment, developing entrepreneurship education has become a key part of South Africa’s policy focus. The Entrepreneurship Development in Higher Education (EDHE) program was initiated to transform universities into entrepreneurial spaces and to stimulate innovation and entrepreneurship among university students and enhance their entrepreneurial capabilities. The program offers a mix of workshops and events to students while engaging with universities to integrate entrepreneurship into the university curricula. A similar strategy has also been put into place for schools through the Entrepreneurship Development in Schools program.
Johannesburg is also home to 22-On-Sloane which is Africa’s largest startup campus and offers several digital skills programs that target youth employment. The courses include cloud computing, artificial intelligence, coding, software development and many more. They also run a GEN Juniors weekend program that teaches high school students various modules on entrepreneurship, design thinking and coding. The 10,000 square meter campus is joint venture between the Global Entrepreneurship Network and the national government.
Market Access
The South African government has taken significant steps to open up procurement contracts to startups whilst reducing the dominance of large corporations. Most recently they have had success in opening private sector supply chains through their Enterprise Supplier Development programs and by launching the Enterprise Supplier Development Community of Practice (ESDCoP). The ESDCoP works through a public-private collaboration aimed at supporting effective transformation through enterprise and supplier development. It provides a platform for ESD practitioners in the corporate sector to share knowledge, develop professional skills, and learn about new ESD programs and services. Although this is a new initiative a number of large corporates have already signed up to it.
In addition to this the Department for Small Business Development has developed a Localisation Policy that aims to build SMME participation in the manufacturing value chain, especially amongst township and rural enterprises. The framework also seeks to facilitate access of local SMMEs to international export markets and facilitate access to retail shelves.
Inclusivity + Culture
Since the end of Apartheid and the formation of South Africa’s first democratic government, tackling the deep legacy of racial inequality has taken pivotal role in the government’s agenda. Broad-Based Black Economic Empowerment (B-BBEE) is arguably the central feature of the government’s approach to facilitating broader participation in the economy by racial groups that were repressed through Apartheid.
The central feature of B-BBEE is the B-BBEE Scorecard which measures companies’ commitment to black empowerment. The Scorecard assesses a company's level of compliance against five elements - ownership, management, skills development, enterprise and supplier development, and socio-economic development. Once a company has been measured against the B-BBEE Scorecard it will achieve an overall score which determines the level of public procurement contracts that they can bid for. Certain industries are also mandated to have a particular percentage of Black ownership or a high enough B-BBEE score to receive licenses to operate. Companies that fail to comply can be fined or even de-registered. Companies that fail to achieve a 40% sub-minimum on any of the five priority elements will automatically have their B-BBEE status reduced by one level.
Likewise, the Department of Trade and Industry has introduced the Black Industrialist Scheme which offers financial and non-financial support to black run businesses achieve their full potential. As well as capital costs, the program offers support developing business plans, post-investment support and business development services.
Regulation
It is a fact of life that startups – many of whom are attempting to disrupt deeply entrenched markets – find themselves frustrated by red-tape which is often embedded across a myriad of legislative documents. The South African government have taken a bold step to deal with the problem by introducing the Red Tape Reduction (RTR) unit. This unit is a dedicated team focused on reducing excessively complex rules, regulations, procedures, and processes inhibiting economic growth and job creation in key areas of the South African economy. The RTR unit follows a collaborative approach to simplify business regulations and compliance, working with departments and agencies to make it easier to do business. This includes engaging with stakeholders such as Business Unity South Africa (BUSA) to discuss focus areas and priorities, particularly those affecting small, medium, and micro enterprises (SMMEs) and larger businesses.
The government has also taken steps to introduce the Small Enterprise Ombudsman with powers to ensure that SMMEs get the money they are owed and tackles the issue of late or non-payment of amounts due to small enterprises which can have a dramatic impact on their growth. Likewise, the Department of Small Business Development is also busy streamlining business licensing processes.
Ecosystem + Economic Development
The Incubation Support Programme is the government’s flagship policy to develop the entrepreneurial ecosystem by supporting the establishment of incubators and digital hubs to assist in the creation of new enterprises and job opportunities. At the outset the government set an objective of creating 250 incubation and digital hubs by 2024 including at least 100 stand-alone incubators. This target was surpassed in 2023 ahead of schedule. It is estimated by the government that these incubators will contribute to 1,290 new enterprises and 25,000 new jobs.
Moreover, 22-On-Sloane has become the governments active partners in ecosystem building. Their campus provides a comprehensive, all-inclusive package designed to elevate startups and inventive small to medium-sized enterprises (SMEs) from their foundational concept through to market commercialization. This includes facilitating avenues for funding and market entry. The core objective is to cultivate an entrepreneurial culture, guarantee the longevity of these ventures, and investigate the emergence of novel industries, all while contributing to the generation of employment opportunities across Africa.
Science, Technology + Innovation
The Seda Technology Programme (Stp) is an initiative by the South African Department of Trade and Industry, in collaboration with the Small Enterprise Development Agency (Seda), that offers support to small enterprises adopt new technologies. One of its key goals is to enhance technological innovation within these businesses. It strives to boost accessibility to and the utility of technologies and technical support for small enterprises. Additionally, the program is focused on facilitating the acquisition, development, and transfer of technology to small enterprises, with a particular emphasis on those operating in the second economy. The work of the program is underpinned by the Technology Transfer Fund which has annual budget of R113 million (approx. $5.9 million).
South Africa has also had three major policies that have been developed to enhance technological developments which includes: the National Development Plan 2012, National Broadband Policy 2013 (South Africa Connect) and the National Integrated Strategy on ICT Policy White Paper 2016. They have also adopted the Digital Economy Masterplan and the National Digital and Future Skills Strategy.
Policymaking
In 2022, the government launched the third iteration of its SMME strategy, called the National Small Enterprise Development Strategic Framework (NISED) which is the new overarching strategy for South African small businesses. The strategic intent of NISED is to correct the narrow approach of government operating in its own lane, and instead focuses on mobilizing all available capacity and resources in the eco-system. It does this through creating an enabling environment that makes eco-system role-players want to partner with government and with each other. The strategy directs policymakers to forge practical partnerships to scale up access to markets, access to finance, and access to business development services.
The case studies covered in GEN Atlas reveal a comprehensive network of startup support offered in South Africa across the 8 key policy themes. In particular, the government has taken proactive steps to improve the regulatory environment for South African startups and shown an impressive level of ambition in positioning South Africa as a regional leader in access to finance. Nevertheless, developing a stronger entrepreneurial and spreading enterprise education remains a key challenge for policymakers and ecosystem leaders.