What startups & small businesses expect from President Ramaphosa’s SONA
KIZITO OKECHUKWU | FEBRUARY 10, 2020
President Cyril Ramaphosa delivering the keynote address at the Africa Heads of Mission Conference. Picture: GCIS
As President Cyril Ramaphosa prepares to deliver his State of the Nation Address (SONA) later this week, many startups are hoping that it will highlight the challenges they face in scaling their firms.
With many jobs from the mining, retail and telecommunications sectors set to be cut, startups believe that many of those retrenched will resort to entrepreneurship or will join the gig economy. We spoke to a few startups and small businesses and this is what they expect to be addressed at SONA.
1. Access to Capital: Although there has been an effort to circulate capital in the entrepreneurial ecosystem, it’s still not enough. The belief is that there are too many capital providers chasing too few deals and many are more interested to invest in the early/growth stage startups, rather than where the market need is, which is in pre-seed and seed stage.
2. Lack of Effective Programmes: The private and public sectors continue to launch various programmes, but many of these are ineffective and offer no connectivity to the startups business growth. Startups are also frustrated with training programme content, which is not aligned with their needs and often offers no sort of growth plan to help launch into market, while many programmes are also poor in the critical grooming stages. The private and public sectors should support more targeted programmes to develop high impact startups.
3. Building a Cohesive Ecosystem: Silicon Valley is a success story in its own right – their ecosystem is carefully crafted with numerous support mechanisms in place for various incubators, accelerators and funders, etc. Although competition is healthy, in Africa the situation is different. Instead of trying to collaborate and be more competitive, the ecosystem often operates in silos, disadvantaging the startups from the get-go. A cohesive ecosystem will also help startups get the help they need to scale. What’s more, many startups drift from one programme to another, from one seed grant to another and this is simply because the ecosystem is not cohesive enough, which can also result in some cheating the system – they end up not launching their product though they’ve received the grants to do so. At least grant funding should be used for test, pilot and even launch should the initiative end up being market fit. More capital investments are also needed to help startups launch.
4. Addressing the Macro and Micro Economic Issues: The rise in inflation remains another threat to the economy. Startups believe that the country seems unprepared for this and, given the health virus in China, the trade war and the rise in protectionism, the government should do more to ensure that startups do not bear the burden of these challenges. On the micro economic side, the biggest and most constant threat in the room is the unreliable power supply, which has crippled (and continues to cripple) thousands of small businesses. Small businesses also believe that they have been disadvantaged by the current political climate, where many public institutions delay working with them owning to the Public Finance Management Act (PFMA) processes which disadvantages small business owners. They also believe that the 30% procurement policy of government for small businesses have not been effectively implemented to benefit them.
5. Building a Knowledge Economy: More and more startups want to see the private and public sector invest in innovation, if we are serious about competing globally. South Africa cannot achieve its knowledge economic goals if a substantial amount of effort, time and money is not invested to invent, innovate and inspire the development of products and services. It has been proven the world over that even though a country can be resourced and industrialised, it can only achieve its competitive edge through knowledge. Over the weekend, I read a World Economic Forum (WEF) insert on Pittsburgh where their Mayor Bill Peduto spoke on how the City has transformed itself over the past few years. Pittsburgh was one of America’s most famous industrial towns which is now a steel mill into a solar farm. The City used to produce half of America’s steel, but in the late 1970’s, the US steel industry collapsed due to foreign competition and shrinking demand. Between 1981 and 1983, the number of unemployed in the city rose from 89,000 to 213,000. By 1990, Pittsburgh had lost a third of its population. The City knew that something needed to be done and lots of fund was invested in technology research which attracted entrepreneurs. In 1996, a NASA funded robotics centre opened helping the City reinvent itself as a centre of innovation. The City is today well equipped to lead America’s sustainable energy transition and has now pledged to use 100% renewable energy by 2035.
6. CEO Mentoring: Experienced and retired CEOs/Executives should be encouraged to give back, perhaps using a tax incentive, which can inspire them to spend time mentoring young startups. This ensures knowledge transfer and offers them the opportunity to enjoy a more fulfilled life towards the end of their career.
In closing, the International Monetary Fund (IMF) report on South Africa predicts that debt accumulation is expected to exceed 60% of GDP. In 2019 the estimated growth rate was 0.4% and only 0.8% is expected for 2020, while load shedding is set to last for the next 18months, so it is – and will be – a tough time ahead for Africa’s leading economy.
Just like the economy, morale is at an all-time low in circles of friends, among the business community and even within the entrepreneurship ecosystem. More should be done to inspire hope which will ignite private sector investment in the economy and drive startups to not give up but to keep building and scaling.
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IDF Capital’s mandate is to invest profitably in the entrepreneurial SME landscape by providing appropriate financial and non-financial products and support to unlock value within the sector. Future Fund is a R250m (USD$17m) Fund in partnership with Telkom and BCX, and focuses on investing in high impact Tech startups from seed to scale, with ticket sizes ranging from R50,000 (USD$3,000) to R20m (USD$1.3m).
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