Mixed views over SA start-up legislation proposal

Samuel Mungadze
By Samuel Mungadze, Africa editor
Johannesburg, 31 Jul 2020

A proposal to reform legislation and enact a Start-up Act that will create an enabling environment for entrepreneurs has received mixed reactions from key sector players and academics.

Advocates of the proposal say a co-created and tailor-made national Start-up Act will be a powerful tool for empowering entrepreneurs and addressing key developmental issues in SA.

There have been growing calls for a comprehensive Act to reinvigorate SA’s start-up scene as the country’s reputation as a leading environment for start-up development in Africa has come under doubt.

This week’s discussions emanated from the Digital Collective Africa webinar, in which various players explored the benefits of implementing a Start-up Act.

The group heard that while funding in Africa has boomed in recent years to new highs, South Africa has, since 2018, seen a decline in funding dedicated to its start-ups as countries like Nigeria, Egypt and Kenya become more appealing to investors.

Some in the audience were concerned that, without government directly in command of the process, a Start-up Act would remain a pipe dream in favour of existing legislation, like the Small Business Act.

The webinar featured sector heavyweights like Keet van Zyl, co-founder of Knife Capital and director of the Southern Africa Private Equity and Venture Capital Association; Matsi Modise, vice-chairperson of SiMODiSA; Timothy Willis, COO of Aerobotics; and Jon Stever, MD of the Innovation for Policy Foundation (i4Policy).

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

Relevant piece of legislation

Participants in the webinar concluded that a Start-up Act is relevant and necessary for the country.

Dr Sumarie Roodt, chairperson of the Silicon Cape Initiative, noted: “There is clear evidence that Start-up Acts create enabling environments for entrepreneurs if all of the relevant ecosystem-related conditions are present.

“This includes the presence of scalable and high-growth potential small businesses, willing investors and nurturing policy. However, the Act should not be considered as the only piece of legislation for business development, but rather part of a large series of interventions aimed at entrepreneurs.”

Stever said the benefits of a Start-up Act are making the concept popular among African economies, pointing out that Start-up Acts have already been implemented in Tunisia and Senegal, with Mali, Ghana, Kenya, Côte d’Ivoire, DRC and Rwanda expected to follow suit this year.

“Mali’s Cabinet approved a Start-up Act that was developed through a co-creation process supported by i4Policy and the World Bank. In Tunisia, the Act is being heralded as a solution to widespread youth unemployment. With roughly a third of all young Tunisians unemployed, the government is using the Start-up Act to encourage young people to be entrepreneurs.”

So far, he added, this is proving to be a success, with funding for start-ups increasing from $5 million in 2017 to $18.5 million in 2019.

“The Start-up Acts in Tunisia and Senegal are a lightning-rod channelling energy towards entrepreneurship, boosting collaboration in the ecosystem and attracting significant additional funding. The processes to develop the laws were heavily participatory and deliberative, ensuring the laws benefit not just entrepreneurs but the communities and industries around them too.

“In the case of Senegal, for example, there are clear measures to boost start-up success, such as procurement preference, intellectual property support and funding, but the co-creation process also resulted in revolutionary tax reforms to support all small businesses.”

Representing the Southern Africa Private Equity and Venture Capital Association, Van Zyl believes there is a need for the holistic development of a Start-up Act.

“It is vitally important that this sort of policy is co-developed through the participation of all stakeholders in the greater start-up arena; this includes venture capitalists, incubators and institutions, but specifically requires the input of entrepreneurs who are the experts in entrepreneurship.

“By taking this approach, we will be able to properly identify and create the right support structures for the different types of entrepreneurs whose needs will vary depending on their respective size, age and scalability. For this reason, we need founders and representatives from within the start-up space to lead the movement towards a Start-up Act.”

Analysts like business coach and strategist Dr Muriel Chinoda, MD of Business Engine, have also welcomed the proposal.

She said a Start-up Act is a welcome idea for a country suffering from sluggish economic growth and massive youth unemployment.

“There are great academic researches, which could otherwise have been commercialised, that are lying gathering dust on the shelves in South Africa. One of the reasons the country is not getting the economic and societal benefits from these researches is the fact that for the most part, entrepreneurship means quitting a job or going without an income for a number of years whilst the endeavour is scaling up.

“Start-up grants or leave for creation of start-ups policies (as they have in Tunisia) will promote and nurture entrepreneurship, thereby propelling technological and economic growth for SA, whilst contributing meaningful solutions to global dilemmas. Commercialisation of academic research through start-ups will extract more value from the tax-rand used to fund most academic research in the country.”

While there is general acceptance of the proposed Start-up Act, not everyone is convinced this will help entrepreneurs.

Divergent views

Professor of banking and corporate law at the University of the Witwatersrand, Herbert Kawadza, views the suggestion as a nullity.

“It’s pointless to come with new pieces of legislation unless there is evidence of how it is going to be enforced. What mechanisms have been put in place to ensure enforcement?

“It doesn’t make much sense because we already have existing legislation, which is meant to achieve the same objectives but there isn’t enforcement. Why not just amend the laws in existence to make them more sympathetic to digital and tech start-ups?”

Contrarily, Modise, whose organisation amplifies entrepreneurship in the country, said: “While there is existing legislation aimed at small businesses, we need to understand that SMEs are not necessarily the same as start-ups. Rather, we need to have a guideline in South Africa for entrepreneurs of young, high-impact and scalable businesses that speaks directly to them.

“Most importantly, any such framework must be inclusive, relevant and enactable – this means that start-ups from all walks of life must be able to see and derive value from it. Doing so will indicate to investors that we are serious about new business development and that we, as a country, know what we are doing.”