The Value of a Startup Act for South Africa

– by South African Startup Act Steering Committee chairperson and SiMODISA vice chairperson, Matsi Modise

Around the middle of last year, I was fortunate to be part of a panel discussion where the question, “Does South Africa need a Startup Act?” was posed. The answer was a resounding yes from the participating ecosystem stakeholders, including investors, ecosystem enablers, institutions and entrepreneurs from around the country. Essentially, a Startup Act is a call to the President to unleash the growth and innovation inherent in the country’s entrepreneurs and youth. The Startup Act is a collective effort by government, academia, investors and startups and is driven by a steering committee comprised of representatives from AfricArena, Digital Collective Africa, Endeavor South Africa, i4 Policy, Loudhailer, the Southern African Venture Capital and Private Equity Association (SAVCA), Silicon Cape, SiMODiSA and Wesgro. It is also supported by partners such as the World Bank and UK-South Africa Tech Hub. While there is existing legislation aimed at small businesses, SMEs are not necessarily the same as startups. We need to have a guideline in South Africa that speaks directly to entrepreneurs involved in young, high impact and scalable businesses.

How will it benefit startups?

Desktop research, focus groups and research contributed by the World Bank (one of the main sponsors of the research) have helped the SA Startup Act Steering Committee to develop a position paper that provides a holistic overview of the problems affecting the ability of startups to establish, grow and scale in South Africa. From this, it has become painfully evident that existing policies and red tape are constraining the growth of innovation-driven startups and, consequently, their ability to contribute to job creation. Proposed interventions derived from this research include relaxations to current legislation and policies – such as exchange controls and Capital Gains Tax – impacting the growth of and investment in startups. Others entail: simplifying procurement policies to scale up the involvement of startups in the national economy; the direct funding of startup businesses through automatic reinvestment of PAYE and VAT; and, the easing of labour and immigration laws to foster the availability of and access to skills. It is envisioned that the removal of these and other barriers, which are limiting the creation and impact of startups, will accelerate the socio-economic spill over to the rest of South Africa.

Startup Acts around the world

Stimulating the establishment of – and leveraging new business enterprises or startups – has in recent times emerged as a vital instrument in reshaping economic activity in many countries around the world (1). Young firms account for about 20% of employment, but create almost half of new jobs on average across the Organisation for Economic Co-operation and Development’s (OECD) 38 member countries (2). With this in mind, many countries are emphasising the role of startups in their respective national development and economic policies. For example, as far back as 2011, the United States implemented an Act to accelerate the commercialisation of university research that can lead to new ventures, review and improve the regulatory processes at federal, state and local levels, as well as promote innovation and spur economic growth. The legislation also creates both entrepreneur and STEM visas for highly-educated individuals so they can remain in the US legally to promote new ideas, launch new businesses and create American jobs. According to the Kauffman Foundation, which aims to help individuals attain economic independence by advancing educational achievement and entrepreneurial success, by creating just 75 000 startup visas, more than 1.6 million new jobs could be created over 10 years. Closer to home, Tunisia established its Startup Act in 2018 as a solution to widespread youth unemployment. With roughly a third of all young Tunisians unemployed, the government is using the Startup Act to encourage young people to take matters into their own hands and become novel business owners. So far, this is proving to be a success, with funding for startups increasing from $5 million in 2017, to $18.5m in 2019. The benefits of the Tunisian Startup Act include state salaries for up to three founders per company during the first year of operations; and, generous tax breaks and a one-year leave period for both public and private sector employees to start a company, with the right to return to their old jobs. The South African Startup Act Steering Committee has actually been engaging with Tunisia with the aim of collaborating. These and other countries around the world face many of the same challenges that we do in South Africa, the most pressing of which is unemployment. They have put Startup Acts into effect, so why shouldn’t we? Surely, we must give those who are creating the most jobs the best chance to succeed. 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.

Join the movement at https://startupact.org.za. The voices of all ecosystem players need to be heard if we are to drive awareness for the catalysation of policy that encourages the growth and development of innovative, high growth enterprises in South Africa, and, in turn, encourage job creation and socio-economic development.

(1) Klenow, P J and H Li (2020). “Innovative Growth Accounting”, in NBER Macroeconomics Annual 2020, Vol. 35, University of Chicago Press. (2) https://www.oecd.org/industry/dynemp.htm

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