The proposed act is a form of an invitation to South Africans to have their say about what can be done to enable local startups to grow without current hurdles.
The proposed act is a form of an invitation to South Africans to have their say about what can be done to enable local startups to grow without current hurdles.

Dear President Ramaphosa: This is what SA Startups want

By Wesley Diphoko Time of article published Sep 27, 2021

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A group of well-meaning and hard-working South Africans are working around the clock to make life easier for South African startups by developing a Startup Act.

They include SiMODiSA (Secretariat), i4 Policy, Endeavor South Africa, Silicon Cape, SAVCA, Loud Hailer and The Digital Collective Africa. Earlier this week they released a white paper which contains elements of the proposed act. The proposed act is a form of an invitation to South Africans to have their say about what can be done to enable local startups to grow without current hurdles.

What is contained in this proposed act is ideal and not so ideal depending on who you are and your background. It is ideal in the sense that it seeks to create a common and legal definition of high-growth enterprises, relevant to delivering high-growth impact. This includes the need to formulate and articulate the following foundations from which to support and grow the SA start-up ecosystem:

i. Legal definitions for start-ups, start-up ecosystem, and high-growth enterprises;

ii. Labelling (to distinguish from other labels such as small enterprises, tech(nology) enterprises, SMEs, entrepreneurial businesses and many others);

iii. Harmonisation of policies and acts that have a direct bearing on start-ups; and

iv. Outline specific interventions that are needed to support qualifying start-ups with the potential to become high-growth firms.

This is important partly because in South Africa these terms have been confused, in other words, there’s a difference between a business selling sweets on the side of the street and a business developing software that can be deployed across the world for maximum impact and potential investments.

It is also ideal in the sense that it seeks to enable startups to have better access to finance by calling for tax breaks and incentives to encourage investment in qualifying Start-ups. Anyone who knows the struggle of accessing finance in South Africa will have no challenge understanding the need for such an intervention.

The same proposed act is also not ideal for two reasons.

One: it calls for special treatment to enable a more flexible employment regime that underpins the ability to appoint and dismiss without fear of CCMA penalties and pro-labour rulings, if such appointments are made by a qualifying start-up.

Any startup employee with an experience of being fired by a startup will understand the implications of this proposal. In the startup world there are stories of founders who check their spreadsheets on Fridays and if they foresee payroll challenges they don’t waste time firing staff by Monday.

Two: it calls for automatic relaxation in the extent of BBBEE scrutiny for the purposes of procurement and supply chain grading, enabling quicker access to the supply chains of Corporate South Africa and the public sector. In other words, it is calling for startups to be exempted from BBB-EE. The proposed act goes on to indicate that the benefit for startups will include radically increasing the opportunities for market access, without the restraints and costs intrinsic to obtaining and maintaining BBBEE points and schemes, as well as enabling capital raising from offshore investors without risking the loss of BBB-EE status when local equity is taken up by non-South African investors.

Anyone who understands the current startup ecosystem in South Africa which is mainly dominated by one group of privileged South Africans will appreciate the need for BBBEE in this sector.

There’s no doubt that startups are key for the future of South African economy. The proposed act makes this point clear by highlighting the fact that there is growing awareness that there is a subset of firms in the economy—high-growth firms (HGFs)—that contribute disproportionately to net employment growth. These firms also contribute disproportionately to innovation and productivity growth.

HGFs are broadly defined as the fastest growing firms in the economy and have been found to be responsible for a disproportionate contribution to net employment growth in developed countries . HGFs are the most productive and innovative firms in their industries and consistently create a disproportionately large share of new jobs at any given point in time across different countries.

This startup impact on society should however not exempt them from forming part of solving local economic challenges related to unfair employment practices and economic exclusion of some members of society. The startup community should appreciate the fact that diversity is key to the advancement of economies. Caring for employees and treating employees as partners in the process of building a startup should be seen as value-adding instead of a burden.

As the startup community engages in the next stages of this process may it result in an intervention that will lead to an inclusive and caring economy for South Africa.

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