South Africa’s economic engine is stalling. With the IMF slashing our growth forecast to just 1%, it’s clear that our levers of economic growth are barely turning. Yet within this bleak outlook lies a powerful opportunity, if we choose to unlock it. The question is, can we unlock the support needed to create a start-up ecosystem that is built for sustainable growth?
Small and medium-sized enterprises (SMEs) have long been hailed as the heartbeat of growing economies. They drive job creation, innovation and exports, but if you scratch beneath the surface of our so-called start-up boom the shine quickly fades. While Sars reports more than 3.6-million registered businesses, recent action by the Companies and Intellectual Property Commission (CIPC) to deregister 800,000 inactive entities exposes a sobering reality: we may have more ghost start-ups than actual businesses.
A start-up is not just a business idea with a registration number. It is a living, breathing engine of growth, fuelled by funding, innovation and risk. And here lies the fundamental difference between a start-up and a small business. Start-ups are built for scale and designed for speed and disruption, typically with the backing of venture capital or angel investment. Yet in South Africa we are failing to cultivate a culture where these start-ups are born, grown and retained.
Only about 1,000 companies contribute more than 70% of South Africa’s corporate income tax. Let that sink in for a minute. If start-ups are meant to be the next generation of tax-contributing, job-creating giants, then where are they? And why are so many of our most successful entrepreneurs, people like Cartrack’s Zak Calisto and tech pioneer Mark Shuttleworth, building their legacies abroad?
The answer lies in our start-up ecosystem, or rather the lack of one. In short, we do not have a start-up culture; instead, we have a registration culture, where starting a business is too often treated as a tick-box exercise. Meanwhile, the real challenges of scaling, hiring, innovating and surviving are left unaddressed. We celebrate quantity, not quality, registration and activation, and in doing so we mistake potential for progress.
Globally, countries like India have become synonymous with thriving start-up cultures. They have mastered the formula of cultivating high-growth ventures that go on to list on stock exchanges and create global impact. In Africa, Rwanda and Tunisia are showing the way; cutting red tape, opening up access to funding and welcoming international investors with open arms.
South Africa must act fast or fall further behind. We have a gaping funding hole when it comes to early-stage start-ups, and personal loans are easier to access than business funding, which is both ironic and dangerous. If we truly want to be a competitive player in the global innovation space, we must prioritise early-stage funding and offer incentives that attract international backers willing to bet on our potential.
This is where policy plays a critical role. The proposed Startup Act, which promises to reduce barriers, provide tax incentives and stimulate real activity in the ecosystem, could be a game-changer, but only if it is gazetted and actioned without delay. Like many things in South Africa, it risks becoming another great idea that never moves from policy to practice.
We must also shift our collective mindset. Building a successful business is not easy or glamorous. It requires bucketloads of vision, support, skill and grit. If we continue to push thousands into entrepreneurship without supporting structures, mentorship or access to capital, we are not creating businesses but false starts and ghost start-ups.
A previous Competition Commission report on concentration in the South African economy shows that our economy is dominated by big players, but start-ups have the power to change that — especially in sectors like fintech, e-health and e-commerce.
If we nurture and scale these ventures, we not only create jobs but we also democratise the economy.
South Africa doesn’t need more registered businesses. It needs more real start-ups that solve real problems, create real jobs and pay real taxes. It needs a start-up ecosystem that doesn’t continue creating phantom firms but inspires and enables a future we can all count on.
* Mtwentwe is MD at Vantage Advisory and host of 'The Saica Biz Impact Podcast'
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