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Legislation blocks start-up investments, says Naspers SA CEO

Sibahle Malinga
By Sibahle Malinga, ITWeb senior news journalist.
Johannesburg, 24 Nov 2020
Naspers SA CEO Phuti Mahanyele-Dabengwa.
Naspers SA CEO Phuti Mahanyele-Dabengwa.

The South African government should introduce regulations and legislation that support and encourage international investments in the tech start-up ecosystem.

This was the word from Naspers SA CEO Phuti Mahanyele-Dabengwa, speaking during a panel discussion at the SA Investment Conference 2020, heldat the Sandton Convention Centre last week.

Discussing the landscape of SA’s technology start-up ecosystem and Naspers’s role in propelling the growth of local start-ups through financial support, she pointed out that one of the biggest obstacles faced by South African tech entrepreneurs is limited access to international funding, as a result of SA’s stringent regulatory and trading laws, which limit venture capitalists’ abilities to support the sector.

“When you look at the level of investment and tech capital coming into the African continent, you’ll see that SA is only fourth on the list. Nigeria is on top of the list and then you have Kenya followed by Algeria and then SA,” Mahanyele-Dabengwa noted.

“One of the top of mind reasons for me would be legislation.We need to make sure SA’s legislation makes the environment as investor-friendly as possiblefor global tech investors to be able to invest more in SA, given the fact that Internet investments in SA remain nascent when compared to other territories.”

Lack of a well-defined legal structure, combined with ambiguous laws regarding international investments, which do not keep up with the evolving needs of a digital economy, often result in repelling potential investors from providing financial support to world-class home-grown innovations, she noted.

With large global players, likeGoogle, Amazon, Naspers and others, already well-established in SA, the country’s tech start-up ecosystem should be seeing significant investments channelled towards the many deserving entrepreneurs; however, this is not the case, she added.

“This is the single biggest opportunity for start-up growth, because we are larger than some of these economies like Kenya and yet we are behind, in terms of tech capital coming into SA. So we definitely need to make sure SA is environmentally friendly and I’m glad that minister [of trade, industry and competition Ebrahim] Patel is in the audience to hear this.”

Mahanyele-Dabengwa’s comments come amid growing calls for the establishment of a comprehensive Start-up Act to reinvigorate SA’s start-up scene and create an enabling environment by ensuring local entrepreneurs receive the necessary support and guidance from the sector.

The Start-up Act is a proposal by Digital Collective Africa, a non-profit amalgamation of investors, ecosystem enablers, institutions and entrepreneurs from across the continent geared towards supporting early-stage start-ups.

According to the organisation, while funding in Africa has boomed to new highsin recent years, SA has, since 2018, seen a decline in funding dedicated to its start-ups, while countries like Nigeria, Egypt and Kenya have become more appealing to investors.

The Start-up Act has already been implemented in Tunisia and Senegal, with Mali, Ghana, Kenya, Côte d’Ivoire, DRC and Rwanda expected to follow suit this year.

One of its key benefits, according to Digital Collective Africa, would be to pave a way for start-up funding, boosting collaboration in the ecosystem, ensuring the laws speak to the requirements of fourth industrial revolution policies, and that legislation benefits not just entrepreneurs but the communities and industries around them too.

Discussing Naspers’s role in supporting the local start-up ecosystem, Mahanyele-Dabengwa noted the JSE-listed Internet group, which operates in 18 markets across the globe, pledged R4.6 billion at the inaugural South Africa Investment Conference 2018.

The group has so far invested R1.9 billion of its original pledge in its existing South African businesses Takealot, Mr D Food, Superbalist, Media24 and OLX.

Additional investments were made through its funding vehicle, Naspers Foundry, which has channelled multimillion-rand funding towards several start-ups, including e-learning start-up The Student Hub, SweepSouth and agricultural firm Aerobotics, among others.

“The Naspers Foundry invests in innovative companies, some of which the founders are from top global universities. If you look at Aerobotics, both the founders met at the Massachusetts Institute of Technology. These are people who don't have to be here but they choose to be here as South Africans, and their businesses are domiciled here, but their businesses grow beyond the borders of this country.

“For instance, 50% of Aerobotics’s revenue is from the US. SweepSouth has just expanded into Kenya – these are founders who are growing significant businesses and are looking to make a difference in the lives of ordinary people. So this is something that is critical for us as Naspers, and we are there to support them,” Mahanyele-Dabengwa concluded.