It was the Africa Tech Festival 2022 that triggered the conversation surrounding startups expanding to the global market. Managing partner at HAVAIC, Ian Lessem, led the discussion on the first day of the three-day event. A startup develops a unique product or service that becomes irreplaceable for consumers. However, many need help to hit the global market and remain local. According to the “South African Startup Ecosystem Report 2022”, there are more than 490 South African startups as of May 2022. Based on the list provided by SME South Africa, only 17 businesses managed to hit the global market.
South Africa is one of the top 50 countries with a developed startup ecosystem. Over the past decade, many sectors flourished, including:
- Software and data processing
Cape Town and Johannesburg are leading these developments in South Africa mainly due to the private sector’s contribution.
Why South African Startups Are Important
Technology startups are essential to the economy as they are an engine of growth. These emerging businesses are often game changers as they are known for:
- Innovative solutions
- Job creation
- Economy stimulation
- Foreign investment attraction
More than one-third of the acquisitions that have taken place across the African tech space since 2015 involve South African companies. Consequently, South Africa is one of the four major startup ecosystems on the African content alongside Egypt, Kenya, and Nigeria. While the others rival South Africa in funded ventures or total funding, South Africa has seen the most successful exits. South African Startups account for one-third of the acquisitions (35 tech startups) across the continent in the last seven and a half years. Furthermore, fintech is a significant acquisition driver, as shown by the fact that almost half of the South African tech startup exits in the last 23 months have involved fintech companies.
An exit in finance is when an owner ends their business involvement by selling their stakes, hiring a management team, etc.
The Sectors Involved in the Creation of South African Startups
Technology has proven itself to be most helpful in fintech. And seeing that there has been a shift from manual to digital banking, startups are leaning more and more toward that sector. Furthermore, cryptocurrency trading has been on the rise, and several countries have considered it in their monetary policies.
A prime example of a South African fintech startup is FloatPays. This fintech startup offers financial services and works alongside the education, human resources, and training sectors.
The e-commerce industry is ever-growing and ever-expanding. Small and medium-scale businesses have taken advantage of the opportunities to reach more customers. In addition, this sector promotes ad relies on a cashless and digital economy. Therefore, as long as there is a device and a stable internet connection, buyers and sellers are within reach and can make transactions with minimum effort.
Look at Takealot as an example of an e-commerce startup. It’s South Africa’s leading online store based in Cape Town.
Tourism contributes to around 3.7 percent of South Africa’s gross domestic product (GDP). That percentage is higher than that of agriculture, utilities, and construction. And while the COVID-19 pandemic negatively impacted the tourism sector, it is experiencing an ascent as the world finds its new normal. Consequently, many startups have come out of the woodwork to mend this sector.
Take Afristay (rebranded from Accommodation Direct) as an example. It’s an online marketplace for accommodation booking. Users can search, check availability, compare prices, and book accommodations on the platform. The platform listings include hotels, holiday homes, apartments, hostels, resorts, villas, B&B, camps, etc.
Issues Facing South African Startups
Businesses will always have challenges to face. Unfortunately, startups are tough to get off the ground for many reasons.
Access to Capital
The central issue startups in South Africa face is the need for adequate funding. The majority fail due to poor funding, an inability to generate income, and insufficient resources.
The proper knowledge will take a startup owner a long way to becoming a unicorn. The most crucial information in such cases is preparing a solid business and financial proposal. These proposals quantitatively outline the emerging businesses’ short- and long-term goals, including a return on investment. Subsequently, it will become easier to reel in investors from both public and private sectors, thus, fixing funding issues.
Poor Government Policies
Government policies can either hinder or enable a startup’s productivity. For example, banning cryptocurrency will contribute to the failure of fintech stratups. Other examples are the closing of borders limiting free trade. Furthermore, such decisions make these startups unfriendly to investors.
Policies protecting startups are required to facilitate the upward motion of the business. Prime examples of such policies are tax reductions and easier access to government loans.
A failing and aging infrastructure will exasperate a startup’s resources. South Africa is struggling with its infrastructure across several sectors (i.e., water, energy, etc.). The cost of production in South African startups increases, and the quality of the infrastructure decreases. This cost increase will inevitably lead to a rise in the price of goods and services offered.
The solution to this lies on the shoulders of the government.
- Good roads
- Telecommunication services
Despite being known for their niche fields, startups still go toe to toe with established brands. These established brands’ advantages lie within their service quality and funding. It is natural for consumers to gravitate toward known brands.
The critical factor in remedying this is building trust with their customers through exemplary service, excellent product quality, and consistency.
Accessing global markets can take much work for South African startups. In a world where capitalism is king and consumerism is law, a good marketing strategy is a pillar of business. Unfortunately, numerous South African startups need to apply a successful plan.
Knowing the targeted audience and what catches their attention will change a business’s analytics. Thorough research is the ideal solution.
The startups emerging from Africa, especially South Africa, are innovative, creative and necessary to the community. Unfortunately, few unicorn companies managed to reach global markets. Any startup faces complications ranging from insufficient funding to a not-so-ideal marketing plan. Remedying this is both the startup’s and the government’s duty.
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