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Start-up Act position paper reveals existing legislation cracks

Read time 5min 50sec

If SA were to implement a Start-up Act, this legislation would fast-track the development of the start-up sector and spur innovation, which will in turn significantly contribute to the country’s economy.

This is according to the panellists who form part of the Start-up Act Steering Committee, during a round table discussion, titled: “The Start-up Act – why SA should adopt one”, which took place at the recent SA Innovation Summit 2021.

The Start-up Act Steering Committee comprises start-up ecosystem stakeholder representatives from various organisations, including i4Policy, Silicon Cape, SiMODiSA, Digital Collective Africa, Endeavor South Africa, Loudhailer, The Innovation Hub, Southern African Venture Capital and Private Equity Association, and Wesgro.

It forms part of theStart-up Act Movement, which has called for government to implement a comprehensive Act to reinvigorate SA’s start-up scene, to support high-growth start-ups and address key developmental issues.

The Start-up Act is a proposal that aims to advance economic development in SA. It seeks to create a framework for the creation and development of start-ups based on creativity, innovation and the use of new technologies to create strong added value and competitiveness at a national and international level.

The committee recently released a Start-up Act draft position paper, which details research findings, gathered over the past six months, based on focus groups and research contributed by the World Bank, shedding light on the start-up landscape in SA.

Among the suggestions in the paper is that innovation-driven start-ups with a turnover of less than R100 million be exempted from the limitations of existing policies and the red-tape that constrains their growth and ability to contribute to job creation.

The paper, available publicly, is under discussion among many entrepreneurial communities. Once the inputs are collated, the paper will be finalised and officially submitted to government.

During the round table, panellists agreed the proposed legislation would encourage job creation and socio-economic development in SA, while helping to stimulate innovation and the exportation of technology-related products and services.

Pieter Holl, CEO of The Innovation Hub, a government-owned start-up hub, explained: “Government is in full support of innovation, especially the disruptive part of innovation, because we need to disrupt and ensure there is no monopoly taking place because we need a fair and equal playground. The Act will play an important role in creating that enabling environment, where we can protect our start-ups and also reduce the rate of imports by ensuring our technologies are exported at a rate that grows the economy.

“In government, we also have the special economic zones that we are establishing for high-tech innovation, and this Act will play an important role in ensuring exclusivity in growing small tech companies and encouraging more innovation.”

Holl explained The Innovation Hub, which supports almost 600 start-ups across SA, is among the organisations engaging government on the importance of such an Act and its implementation process.

“There are many entrepreneurs at The Innovation Hub who are like Elon Musk in their own way, but they need that government-kind of unlocking potential and intervention to scale. The Act will not be to ensure compliance, but would also call for participation from the public sector and the broader ecosystem – and the private sector is also needed, because government can’t accomplish that on its own.”

Matsi Modise, vice-chairperson of SME support body SiMODiSA Association, and founder of Furaha Africa Holdings, a Pan-African organisation aiming to enable and leverage growth across Africa’s start-up landscape, said SA is falling behind global counterparts that are already reaping rewards from introducing similar legislation.

SiMODiSA Association is also spearheading the Start-up Act Movement.

“As we know, this Act is not new globally, with a lot of countries that have it, but on the African continent, various other countries are starting to adopt Start-up Acts.

“SA needs a progressive legislation that articulates what innovation-driven start-ups are, so that it’s important we identify them and also create an enabling environment for them to thrive.

“For many years, local start-ups have been losing out on international investment opportunities, disruptive talent and our ability to promote our innovations globally, because for South African entrepreneurs who have high-impact businesses that are innovation-focused, it becomes very difficult and expensive to go global. Why don’t we have more of the Elon Musks and the Mark Shuttleworths starting and growing their businesses from SA as opposed to them starting their businesses overseas?”

Modise pointed out that 72% of the South African labour force works in the SME sector, making start-up growth vital for SA’s start-up economy. While SA’s current systems present many obstacles and red-tape in realising that growth, relaxation of legislative barriers could encourage more scalable entrepreneurs to remain in SA instead of scaling their businesses outside the borders, she added.

The four main recommendations of the Start-up Act draft position paper are:

  • Providing tax breaks to encourage investment into qualifying start-ups.
  • Remove barriers that inhibit access to skilled talent.
  • Remove inhibiting regulatory barriers that hamper globalisation and investment into qualifying start-ups.
  • A qualifying start-up to be exempted from preferential procurement limitation.

[PICTURE] Matsi Modise.

[CAPTION] Matsi Modise, vice-chairperson of SiMODiSA Association and founder of Furaha Africa.

Stephan Lamprecht, founder of Venture Solutions Nova, a Southern African-based management consultancy appointed by the SA Start-up Act Steering Committee to provide research and advisory services, noted that in addition to radically increasing start-ups’ contribution to the national GDP, the Act would seek to address the growth objectives outlined in the National Development Plan.

“We’ve got globally successful entrepreneurs in SA, but what we want with the Act is for those businesses to impact SA. The purpose is not to create more regulation, but to create a dispensation where there is a relaxation for start-ups that are in that high-growth phase, to really have as much impact and support as possible in the South African economy. It will advocate for a number of relaxations to current legislation and policies impacting on the growth of, and investment into start-ups, including exchange controls and Capital Gains Tax,” he explained.

Other relaxations include simplifying procurement policies with which to scale up the involvement of start-ups in the national economy, direct funding of start-up businesses through automatic reinvestment of PAYE and VAT, and easing of labour and immigration laws to foster access to talent, he noted.

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