South Africa makes start-up ecosystem inroads

Simnikiwe Mzekandaba
By Simnikiwe Mzekandaba, IT in government editor
Johannesburg, 06 Jun 2024
South Africa improved its start-up ecosystem ranking to number 52 in 2024.
South Africa improved its start-up ecosystem ranking to number 52 in 2024.

Even though South Africa is currently experiencing political uncertainty, it has come up in the ranking of winners in the innovation economy.

South Africa’s start-up ecosystem is ranked 52nd in the global start-up ecosystem, ahead of countries like Serbia and Thailand, which rank 53rd and 54th, respectively.

This is based on start-up ecosystem and research centre StartupBlink’sGlobal Start-up Ecosystem Index 2024, which ranks 100 countries and 1 000 cities. The index has been released annually since 2017.

The rankings index is built using hundreds of thousands of data points processed by an algorithm that takes into account several dozen sets of parameters. The data was either accumulated directly from StartupBlink’s interactive Global Start-up Ecosystem Map, or from integration with a global data partner, which includes Crunchbase, BrightData, Statista, SEMRush and UNDP.

For the purposes of its research, StartupBlink defines a start-up as any business that applies an innovative technology-enabled solution that has the potential to achieve scalability.

Funding data for South Africa.
Funding data for South Africa.

The latest datasets show SA’s start-up ecosystem has improved, continuing to lead the African ranks, as it has since 2020.

In the 2024 index, the country’s ranking climbed up one spot to 52nd place, the same rank it held in 2020. SA ranked 48th in 2021, 49th in 2022 and 53rd in 2023.

It further notes SA is ranked 29th globally in the number of strategic branches of global technology corporations.

In terms of attracting funding for start-ups, SA is among the top destinations for Africa’s investors, with start-ups Flow, Luno, TymeBank and Ozow (formerly i-Pay) listed on the index.

The US, UK and Israel took first, second and third place in the global ranking. Other African nations featured include Kenya, Nigeria, Egypt and Mauritius, at 63, 64, 66 and 59, respectively.

SA ecosystem overview

According to the index, SA’s start-up ecosystems are some of the most promising on the continent, with organisations like Telkom, FNB and Nedbank supporting this growth with targeted programmes.

Additionally, economically successful cities like Cape Town and Johannesburg mean SA has vibrant, private sector-led start-up ecosystems.

“Cape Town, in particular, stands out as a technology hub, drawing direct foreign investment and skilled talent from across the country. It is also Africa's hot spot for digital nomads.”

However, key challenges such as corruption and insufficient infrastructure are delaying the progress of local start-up ecosystems, and further contributing to the brain drain, says the index.

“The ecosystem faces significant challenges, notably the brain drain, highlighted by the departure of the country's only unicorn, G01, and subpar infrastructure, with extended periods of load-shedding.

“This issue is evident from youth unemployment rates surpassing 50%. Despite these challenges, the difficulty in securing employment has spurred many young people to establish their own businesses, resulting in a start-up ecosystem predominantly led by youthful entrepreneurs.

“Particularly, the fintech industry is a major driver of innovation, with a significant majority of companies operating within this sector. Similarly, the edtech industry is experiencing growth and has further potential for expansion due to the high dropout rates in schools.”

StartupBlink states that organisations − such as the National Youth Development Agency and Small Enterprise Development Agency − have committed to tackle the brain drain challenge by supporting start-up ecosystems with grants, loans and relief options, as well as non-financial assistance.

In addition to public sector efforts, a network of start-up ecosystem stakeholders is working to create the SA Start-up Act, which will signal a milestone once it is launched.

“This initiative sets out to create a favourable policy environment for entrepreneurship, with support from the public sector. Moreover, some other entities that provide support and funding to South African entrepreneurs include the South Africa SME Fund, Technology Innovation Agency and Design Innovation Seed Fund.”

City innovation

Although major cities – Cape Town, Johannesburg, Pretoria and Durban – experienced positive momentum in 2024, the Mother City continues to be the beacon of SA’s start-up value chain.

According to Wesgro, the official tourism, trade and investment promotion agency for Cape Town and the Western Cape, the Cape Town-Stellenbosch corridor contains 450 tech firms and employs more than 40 000 people, making the ecosystem bigger than Nairobi and Lagos combined.

Cape Town is also home to tech heavyweights, such as Naspers, Takealot, Aerobotics, Clickatell, GetSmarter, Yoco and SweepSouth.

This year’s index highlights Cape Town as leading the national ranking, with a small advantage over second-ranked Johannesburg.

The Mother City jumped eight spots to rank 128th globally, while Johannesburg climbed 17 spots to rank 139th. Pretoria increased by 333 spots, entering the top 500 at 426th, while Durban increased 268 spots to rank 547th.

“In Africa, Cape Town is surpassed by Kenya’s Nairobi and now ranks fourth, while Johannesburg remains stable at fifth position.

“With a jump of 11 places, Pretoria enters the top 15 in Africa, ranked 14th, while Durban climbs six spots to rank 21st regionally.”

Cape Town (43rd) and Johannesburg (45th) ranked among the top 50 globally in the payments industry, according to the index. “In Africa, they rank third and fourth, respectively, in this industry.”