The start-up ecosystem in South Africa has triumphantly moved through an emerging state. Increase in entrepreneurial spirit, as well as digital skills and training, is noticeable. Ease of doing business has improved.
Seed and Series A funding is comparatively more accessible. Yet, reports suggest that African startup ecosystems are falling behind the rest of the world.
In 2019, top startup ecosystems in Africa were South Africa, Kenya, Egypt, and Nigeria, ranked at 51st, 52nd, 56th and 60th position respectively. However, in 2020, these countries fell down the rankings. South Africa fell one place to 52nd.
Kenya remains second in the continent, but fell 10 places to 62nd. Rwanda became third after falling one place to 65th, since Nigeria lost 12 places on the rankings to 68th. Egypt fell 21 places to 81st.
Tunisia ranked 77th, Morocco 83rd, Ghana 85th, and Uganda is 89th. Meanwhile, South African cities have improved their rankings, as compared to last year.
For example, Cape town went from 146 to 135 and Johannesburg went from 160 to 72. Similarly, cities like Nairobi, Lagos and Cairo had no such luck.
The Growth drivers
Perhaps, South Africa has the most mature startup ecosystem on the African continent. Consumer and business markets are significant. Entrepreneurial talent is sophisticated and the corporate sector is strong.
Local venture capital industry is emerging with ties to a growing number of international investors. Therefore, this growth is driven by:
- A strong effort from the private sector to organize through associations. In addition, engagements with the government around policies and legislative changes help to assist and stimulate the industry
- Need for entrepreneurship to combat stagnant economic growth and very high unemployment.
- Investment from corporate South Africa through accelerators, incubators and innovative programs
- Availability of funds for skills development, enterprise development and supplier development.
- Increased investment from the government (local and international) in innovation funding and support
- An increase in the number and diversity of successful investors, entrepreneurs, and exits
Overall, the start-up ecosystem in South Africa is propelling much quicker than the arrangements currently designed to sustain them. Each ecosystem would benefit from city-wide digital initiatives.
Population density and logistics is a major challenge for founders. So, getting to incubators and accelerators or heading to find funding and meet mentors difficult.
Internet and mobile penetration in South Africa are growing. Market places, ecommerce and sharing-economy based B2C platforms are exploding. Hence, all this is possible due to a strong base of design and digital marketing talent.
Fintech & Insurtech
Pretty much anything using big data to solve challenges in the financial industry is a key market in South Africa. For instance, payment solutions, money transfers, remittances, KYC, authentication and cybersecurity.
Software as a service is popular with large financial services, manufacturers and retailers. So, software licensing and delivery model on a subscription basis model a huge market.
The efforts of the combined ecosystem have produced results across the continent. Although, most of the activity is still concentrated in Johannesburg and Cape Town. These efforts have resulted in:
- An active and evolving startup ecosystem driven by the private sector.
- Increased funding available for early-stage investment. Particularly, at the Venture Capital stage, changes in policy have made funding readily accessible.
- Many startup support and acceleration programs
- More seed funding options available from the government
- More startups in a variety of tech sub-sectors such as Fintech, Traveltech and Edtech. Usage of innovative technologies like the Internet of Things (IoT), artificial intelligence (AI), machine learning and blockchain technologies.
Moreover, entrepreneurs need to realize that the world is more connected than ever before. Creation of high-growth, digitally-enabled businesses will make an impact in the country.
It will also create jobs. Therefore, build local but also aim beyond the borders.
Governments also need to create more incentives to attract skilled professionals. Additionally, attracting entrepreneurs with international experience will establish businesses in the continent.
This will bring more seasoned startup founders into space. Skills transfer, creation of international networks and more export-focused companies will ensue. Henceforth, more high-growth businesses will create jobs.
Alcor comes with 20+ years of experience. Our office in South Africa ensures you get to be part of the dynamic growth in Africa by providing you with seed capital and other investment banking services. Moreover, we are the largest capital venture firm in South Africa, come grow with us!