Another round of international investment in South Africa’s tech industry

The SA Startup Act Movement (SUA), an initiative aimed at supporting the country’s fast-growing startups, has entered its third round of investment from the British High Commission.

The latest round of UK-SA Tech Hub investment comes just months after the formation of the Government of National Unity (GNU) coalition, providing further impetus for another round of investment.

Milisa Mabinza, director of UK-SA Tech Hub, says that since establishing a role supporting fast-growing startups in the country, the company has seen results that have impressed it.

UK-SA Technology Centre

The UK-SA Tech Hub was created to support SUA’s work to encourage local governments to change and implement policies that better support the exponential growth of South African startups – to the benefit of the entire economic ecosystem and job creation.

“We believe that after the elections, the GNU paves the way for faster changes in terms of policy reform, given that the coalition government can implement changes more effectively at the provincial level, and we are pleased to be part of such important legislative changes,” Mabinza added.

SUA, a group of South African startup investors, incubators, accelerators and founders, led by a steering committee of leaders from the South African entrepreneurship development sector, plays a key role in shaping the policy framework in South Africa and implementing policy reforms that impact the ability of SMEs to do business in the country.

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Government announcements regarding technology

He says that in recent months the government has been announcing changes to legislation that will impact the startup ecosystem.

“For example, the update to the Foreign Exchange Control Circular was crucial as it eased restrictions on capital flows, which greatly helped startups looking to attract foreign investment and expand globally.”

He points out that the SA Startup Act Movement Secretariat has been working over the past few years to identify a number of other legislative obstacles that limit SME growth opportunities, engaging with the National Treasury and Government, as well as other key stakeholders on issues of red tape.

“He has been an advocate for visa reform since 2014 and has made clear his position that an influx of diverse, highly skilled and innovative entrepreneurs would bring significant benefits to the country.”

The gap between available skills and required job positions

She cites W&RSETA, which says the gap between available skills and the jobs that require them could cost the country an estimated 1.6 trillion rand in unrealised economic potential this year.

Matsi Modise, chairman of the SUA, says the digital nomad visa will play a significant role in addressing the skills shortage the country is facing, especially in the technology industry.

“Scarce skills such as those related to engineering, information technology, healthcare and finance are in high demand, and fast-growing startups offer potential employment opportunities to these global workers, who in turn transfer their skills and knowledge to the local workforce.”

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Startup Act on the Horizon

Modise emphasises that SUA recognises that policy reform is at the heart of creating a vibrant SME ecosystem and has long advocated for South Africa to have its own Startup Act.

“A dedicated Startup Act would address the challenges faced by startups in the country and provide a framework to support these companies.” Modise adds that the need for the Startup Act is important as digital transformation continues to reshape industries and create new opportunities.

“In addition, it would have a far-reaching impact in attracting long-term investment, such as the UK’s SA Tech Hub, which will support the country’s wider economic aspirations.”

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Key Political Reforms

“The key policy reforms that SUA has advocated for to address the challenges facing high-growth startups include:

• Existing intellectual property laws impose burdensome and costly restrictions on transferring intellectual property abroad – a fundamental requirement for startups seeking to attract capital from the global VC market;
• Onerous and costly currency control restrictions imposed on start-ups establishing a global headquarters, as well as the requirement to raise capital from the global VC market. Practical interventions that will contribute to the implementation of the inclusive payments digitalisation agenda have been developed and will be implemented in 2024;
• Capital gains tax, which is levied well in advance of a potential future cash flow event for the startup, making startups in South Africa more costly compared to other countries; and
• A startup and remote worker visa designed to attract international founders of fast-growing startups and enable entrepreneurs to hire a handful of highly experienced foreign talent who will share their knowledge and experience with their teams, driving business growth. The digital nomad visa was introduced in May 2024.

“We are investing in the SA Startup Act Movement for the long term and want to see their goals realized and implemented. We understand the enormous contribution that SMEs make to the country’s economic development,” Mabinza adds.

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