South African start-ups face a challenging environment, with risks skewed to the downside, Joseph Ndaba, the CEO of MDIHub (Mafikeng Digital Innovation Hub) said this week in an interview.
Ndaba is also a member of the South African Presidential Commission on the Fourth Industrial Commission (4IR Commission).
“(Economic) growth has lost momentum, high inflation has broadened out across countries and products, and is proving persistent. The grey listing is also making things worse,” Ndaba said.
This month the Financial Action Task Force placed South Africa on a list of countries under increased monitoring, or the grey list, after it failed to address financial shortcomings on money laundering.
Both the global economy as well as the domestic economy was facing significant challenges.
“The increase in interest rates, necessary to curb inflation, heightens the financial vulnerabilities. The Russia and Ukraine war is increasing the risks of debt in low income countries like South Africa, while food insecurity is becoming a serious challenge.
“Both the domestic and global economy influence each other, but we have seen in the past two years the global economy has had a big negative impact on the domestic economy due to lack of productions, job creations, trading and innovation of new concepts that would bring economic stability,” he said.
Another challenge that local start-ups face was the country’s power crisis.
South Africa’s energy supply shortage could push prices higher and knock the business economy, he said.
This led to start-ups having to factor in the high cost in looking for alternative power sources, like solar panels and generators, to ensure business continuity during load shedding.
Ultimately, the power crisis led to reduced business by reducing production and effectiveness. And it all impacted companies bottom line and balance sheet.
Not only did start-ups have to increase their budget for costs, the cost of buying electricity kept rising.
“The pending increase of over 18% in Eskom tariffs will also cost businesses,” Ndaba said.
And as start-ups face these challenges they are fighting for growth after the Covid-19 pandemic.
Many South African start-ups operated in survival mode amid the Covid-19 disruption, which has fundamentally changed how businesses operate.
Start-ups had to adapt to new ways of doing things due to the pandemic, called “the new normal”, with remote working, virtual workspaces as well as working with fewer employees (as many start-ups had to retrench staff due to lack of profits) and the no-work, no-pay standards.
Covid-19 had also led to employee emotional and physical constraints resulting in a lack of productivity for most businesses.
However, Ndaba stressed that there was potential for growth going forward in South Africa, especially for business and individuals who were willing to adapt to the changes that were being brought forth by technology like Artificial Intelligence (AI) and 4IR as a whole.
“We have a lot of new South African developed concepts which include apps, innovations solving not only local, but also global needs. The growth will also be influenced by the educational trends being chosen by the youth of South Africa when pursuing their studies at tertiary level,” Ndaba said.
Over the past year, the highlights for every tech-driven company was to see growth and acknowledgement on the impact that technology has had in the business sector and survival of the economy, he said.
Businesses were upping the use of technology, researching more and adopting AI.
“The challenges (for tech companies) are mostly around ensuring high-level security and ensuring the protection of data at all times,” he said.
Cyber crimes are rocketing
According to the Mimecast State of Email Security 2023 report, 92% of local companies have been the target of a phishing attack, with six in 10 reporting an increase in such attacks. More than half (52%) have fallen victim to ransomware in the past year, and nearly nine in 10 (88%) were made aware of attempts by threat actors to misappropriate their email domain.
Meanwhile, according to the third quarter (3Q) 2022 SME Confidence Index report, a research study conducted quarterly and released last month by specialist SME financier, Business Partners Limited, SMEs in South Africa displayed surging levels of year-on-year business confidence that their business ventures will bear fruit.
According to the Index, SME confidence that their businesses will grow in the next 12 months increased drastically from just 33% in Q3 2021 to 77% in Q3 2022 – a staggering increase of 44 percentage points. Furthermore, SME confidence that ease of access to finance will improve, rose to 62% in Q3 2022, from just 21% in Q3 2021.