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Tech entrepreneurship ecosystem in South Africa 2018 - OC&C ...
Tech entrepreneurship
ecosystem in South Africa
2018

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2   Tech entrepreneurship ecosystem in South Africa					                                                            Tech entrepreneurship ecosystem in South Africa   3
Tech entrepreneurship ecosystem in South Africa 2018 - OC&C ...
Preface
The digital era has brought a fundamental           Given the importance of strong fundamentals       Google
                                                                                                      In our view,has
                                                                                                                    thecommissioned       thispreconditions
                                                                                                                        inputs that form the    study to for         For the
                                                                                                                                                                     Based   onpurposes         of this
                                                                                                                                                                                  our assessment,      westudy,     entrepreneurs
                                                                                                                                                                                                            identified leading and
shift in the global economy, pushing the limits     in attracting both domestic and global interest   success
                                                                                                      identify areas for improvement ineach
                                                                                                                and  the resulting outputs  feed       other and
                                                                                                                                                   policies  in      emergent      countries   in tech  entrepreneurship,
                                                                                                                                                                     are defined as those individuals who focus               putting
                                                                                                      an iterative process, which determines the health of           the USA, Singapore, Israel and UK at the top of the list.
of innovation and redefining the boundaries         in the tech entrepreneurship ecosystem,           regulations which affect tech entrepreneurship                 on building a rapidly scalable business
                                                                                                      a tech entrepreneurship ecosystem. Factors such as             Identifying successful countries provided a filter for
of global trade. Innovations have never been        countries which fail to make broader reforms      in South Africa, as part of a six- country study
                                                                                                      the quality, connectedness, and efficiency of a tech
                                                                                                                                                                     venture     with the aim of innovating, improving,
                                                                                                                                                                     selecting best practices as well as setting performance
faster paced, more widespread, or scaled up         in education, good governance and create          that  includes the
                                                                                                      entrepreneurship       Russian– Federation,
                                                                                                                           ecosystem    which we referTurkey,
                                                                                                                                                        to as the    or  transforming
                                                                                                                                                                     indicators               the countries
                                                                                                                                                                                   that aspiring    current way such of  doingcan
                                                                                                                                                                                                                     as Turkey
more quickly, creating billion-dollar “unicorns”.   a business environment that supports              Nigeria,
                                                                                                      inputs      United
                                                                                                              – create      Arab Emirates
                                                                                                                       the conditions         (UAE) and
                                                                                                                                       for sustainable      the
                                                                                                                                                       success.      things.
                                                                                                                                                                     use
                                                                                                                                                                               3,4
                                                                                                                                                                          to assess The   entrepreneurship
                                                                                                                                                                                       their                         domain,areas,
                                                                                                                                                                                             status, identify improvement
Over the last 15 years, the ICT sector – as a       entrepreneurship risk falling behind.2            Kingdom of Saudi Arabia (KSA).
                                                                                                      Meanwhile,    effectiveness  in generating  tangible results   according to our definition, includes
                                                                                                                                                                     and  apply    approaches      that fit the nature      the own
                                                                                                                                                                                                                        of their
backdrop to innovation and digital advances                                                           such as growth, employment, the creation of wealth             ecosystems.
                                                                                                                                                                     ‘startup’ and ‘scale-up’ phases of the business
– has seen its share grow from just 1.3 percent                                                       along with further innovation – the outputs – cultivates a     lifecycle     when     companies
                                                                                                                                                                     To  put Turkey’s    status  in context,experience
                                                                                                                                                                                                               we have compared
                                                                                                      stronger ecosystem by attracting more of the required
of the global economy to 3 percent, and it’s                                                                                                                         high and
                                                                                                                                                                     input  growthoutput inindicators
                                                                                                                                                                                            revenuesforand        numbers
                                                                                                                                                                                                             Turkey  against aofpeer
                                                                                                      inputs. This holistic perspective is reflected in the
set to grow even more.1                                                                                                                                              set of countries     with  comparable
                                                                                                                                                                     employees while validating their value     development    stages,
                                                                                                      framework we used to assess tech entrepreneurship
                                                                                                                                                                     similar  characteristics,
                                                                                                                                                                     proposition.                 or geographic
                                                                                                                                                                                         Furthermore,               proximity.
                                                                                                                                                                                                              we specifically
                                                                                                      success.
Nations that nurture a digital- and innovation-                                                                                                                      address
                                                                                                                                                                     In the finaltechnology-driven
                                                                                                                                                                                    stage of the study, we entrepreneurship
                                                                                                                                                                                                                conducted extensive –
based culture have pioneered the global                                                                                                                              primary
                                                                                                                                                                     companies with technology-enabledthebusiness
                                                                                                                                                                               research    in Turkey   to   complement        desk
shift toward knowledge-based industries                                                                                                                              research. Whereas the desk research served to
                                                                                                                                                                     models and a focus on hyperconnectivity
and have enjoyed extraordinary wealth (and                                                                                                                           develop the structure of the tech entrepreneurship
                                                                                                                                                                     between        networks, people, businesses, things,
                                                                                                                                                                     ecosystem and identify current initiatives that are
job creation), while transforming the way                                                                                                                            and   hardware.
                                                                                                                                                                     in place  to cultivate it, we gained insights and
people live and do business. This shift is made                                                                                                                      understood the context and impacts by conducting
possible by substantial tech entrepreneurship                                                                                                                        Using
                                                                                                                                                                     bespoke  these   definitions,
                                                                                                                                                                                research            we began
                                                                                                                                                                                         with ecosystem            with
                                                                                                                                                                                                           participants,
activity within a supportive environment that                                                                                                                        comprehensive        research   of  existing
                                                                                                                                                                     together with Girişimcilik Vakfı (Entrepreneurship
includes both government and private-sector                                                                                                                          literature
                                                                                                                                                                     Foundation). toThe
                                                                                                                                                                                     identify  factors that correlate
                                                                                                                                                                                        policy recommendations      that are
contributions. Initiatives by leading countries                                                                                                                      part
                                                                                                                                                                     with tech entrepreneurship success. Turkish
                                                                                                                                                                          of this report are suggestions   from  the We
are now regarded as best practices for                                                                                                                               entrepreneurial   community   for further
                                                                                                                                                                     identified seven components explaining    policy initiatives
                                                                                                                                                                     that will help strengthen the development of the tech
aspiring nations that want to create a similar                                                                                                                       the strength of the ecosystem that supports
                                                                                                                                                                     entrepreneurship ecosystem in Turkey.
impact, and the global conversation around                                                                                                                           tech entrepreneurship, while economic
regulation and innovation policies is framed                                                                                                                         In total, we interviewed
                                                                                                                                                                     contribution             25 stakeholders
                                                                                                                                                                                      and innovation          (representing
                                                                                                                                                                                                        creation  measures
                                                                                                                                                                     different components of the ecosystem), spanning
around such practices.                                                                                                                                               pointed to the results achieved.
                                                                                                                                                                     public and private as well as institutional and individual
                                                                                                                                                                     perspectives. The full list of participants is presented in
Countries that are more reliant on                                                                                                                                   In our view, the inputs that form the
                                                                                                                                                                     the Acknowledgments section.
manufacturing or natural resources are eager                                                                                                                         preconditions for success and the resulting
to capture a bigger share of the expanding                                                                                                                           outputs feed each other in an iterative
digital economy. In order to deliver on                                                                                                                              process, which determines the health of a tech
these aspirations, they are exploring ways to                                                                                                                        entrepreneurship ecosystem.
transform the fundamentals of their economic
structures and to deploy more resources to
cultivate competitive tech entrepreneurship
ecosystems. Establishing high-impact tech
entrepreneurship as a sustainable source of
employment is especially critical for nations                                                                                                                        1
                                                                                                                                                                       Selvam, M. and Kalyanasundaram, P. “Global IT/IT Enabled Services and ICT
with young populations and a need for new                                                                                                                            Industry: Growth & Determinants.” http://globalbizresearch.org/Chennai_
                                                                                                                                                                     Symposium/conference/pdf/C549.pdf (accessed September 27, 2017)
sources of job creation.                                                                                                                                             2
                                                                                                                                                                       World Bank. “Digital Dividends.” http://www.worldbank.org/en/publication/
                                                                                                                                                                     wdr2016 (accessed September 27, 2017)
                                                                                                                                                                     3
                                                                                                                                                                       Schumpeter, J. 1942. Capitalism, Socialism, and Democracy. New York: Harper
                                                                                                                                                                     & Bros.
                                                                                                                                                                     4
                                                                                                                                                                       Global Entrepreneurship Monitor (GEM) Global Report 2016/17, Global
                                                                                                                                                                     Entrepreneurship Research Association 2017

4   Tech entrepreneurship ecosystem in South Africa					                                                                                                                                Tech entrepreneurship ecosystem in South Africa          5
Tech entrepreneurship ecosystem in South Africa 2018 - OC&C ...
Factors such as the quality, connectedness,
and efficiency of a tech entrepreneurship                  OC&C’s framework for assessing tech
ecosystem – which we refer to as the inputs –
create the conditions for sustainable success.             entrepreneurship success
Meanwhile, effectiveness in generating
tangible results such as growth, employment,               FIGURE I: THE TECH ENTREPRENEURSHIP ECOSYSTEM IS REPEATEDLY STRENGTHENED WITH
the creation of wealth along with further                  TANGIBLE ECONOMIC RESULTS AND INNOVATION
innovation – the outputs – cultivates a stronger
ecosystem by attracting more of the required                                TECH ENTREPRENEURSHIP ECOSYSTEM                                                  RESULTS OF TECH ENTREPRENEURSHIP
inputs. This holistic perspective is reflected                                                                                                 Market
                                                            Financial                   Skilled talent          Networks
in the framework we used to assess tech                     capital         $
                                                                                $                                                             potential
                                                                                $
entrepreneurship success.                                                                                                                                     Economic                          Innovation
                                                                                                                                                             Contribution                        Creation
Based on our assessment, we identified                            Culture               Regulations               ICT infrastructure
leading and emergent countries in tech
entrepreneurship, putting the USA, Singapore,
Israel and UK at the top of the list. Identifying
successful countries provided a filter for
selecting best practices as well as setting                                  Describes the INPUTs necessary                                                            Indicates the OUTPUTs
performance indicators that aspiring countries                          to cultivate thriving tech entrepreneurship                                                      generated by tech
such as South Africa can use to assess their                                                                                                                              entrepreneurship
status, identify improvement areas, and apply
approaches that fit the nature of their own                                                                                                               ECONOMIC                     INNOVATION
ecosystems.                                                                               FINANCIAL CAPITAL               SKILLED TALENT                  CONTRIBUTION                 CREATION

                                                                                            • Grants/subsidies              • Educational                  • Size of tech e-ship       • Innovation
While doing this we also put South Africa’s                                                 • Individual investors            foundations                     ––Revenue                 created by tech
                                                                                               ––Crowdfunding               • Skills development              ––Number of startups      entrepreneurs
status in context, we have compared input                                                      ––Angel investors               ––schools, courses,            ––Share in GDP              ––Number of
and output indicators for South Africa against                                                 ––Personal networks               programs                  • Workforce                      innovative products,
                                                                                                                                                                                          ––process,
                                                                                            • Venture capital                  ––on the job training         employed in tech
                                                                                                                                                                                          ––business models
a peer set of countries with comparable                                                     • Public funding                • R&D and innovative             entrepreneurship               introduced in the
                                                                                            • Corporate                       skills                       • Growth rate                    country in a given
development stages, similar characteristics, or                                               investment (CVCs              • Attracting local                ––Revenue, Number             year
geographic proximity.                                                                         and M&A)                        talent to tech               • Value creation
                                                                                            • Securities market               entrepreneurship                ––Market cap, Unicorns
                                                                                            • Debt financing                • Acquiring                    • Global reach
In the final stage of the study, we conducted                                                                                 international talent            ––Share of int’l
                                                                                                                                                                revenues
extensive primary research in South Africa to                                                                                                                 ––Number of int’l
                                                                                                                                                                operations
complement the desk research. Whereas the                    NETWORKS                     CULTURE                          REGULATIONS
desk research served to develop the structure                • Mentors and coaches         • Society’s attitude to         • Ease of doing
of the tech entrepreneurship ecosystem and                   • Accelerators /                entrepreneurship                 business
                                                               incubators                  • Entrepreneurial               • Compliance
identify current initiatives that are in place to            • Diaspora networks             aspirations and               • Trading across
                                                             • International linkages        appetite                         borders
cultivate it, we gained insights and understood              • Events                      • Promotion of role             • Digital policies
the context and impacts by conducting                        • University-industry           models / success              • Government R&D
                                                               partnership                   stories                          policies
bespoke research with ecosystem participants,                • Tech transfer offices       • Media coverage of
together with technology law firm EndCode.                   • Physical clusters             entrepreneurship
                                                                ––Co-working spaces
The policy recommendations that are part of                     ––Technoparks
this report are suggestions from the South
African entrepreneurial community for further
policy initiatives that will help strengthen the            ICT INFRASTRUCTURE            MARKET POTENTIAL
development of the tech entrepreneurship                     • Accessibility and           • Digital literacy /
                                                               affordability of              readiness
ecosystem in South Africa.                                     Internet (mobile /             ––individual use
                                                               fixed )                        ––cloud migration
                                                             • Cloud & data                   ––digitization of gov’t
In total, we interviewed 25 stakeholders                       center experience                 services

(representing different components of the                                                  • Domestic market size
                                                                                              ––B2B
ecosystem), spanning public and private                                                       ––B2C
                                                                                              ––Public procurement
as well as institutional and individual                                                    • Local market
perspectives. The full list of participants is                                               efficiency
                                                                                           • Internationalization
presented in the Acknowledgments section.

6   Tech entrepreneurship ecosystem in South Africa					      Source: Literature Research, OC&C analysis                                                  Tech entrepreneurship ecosystem in South Africa          7
Tech entrepreneurship ecosystem in South Africa 2018 - OC&C ...
Tech entrepreneurship
ecosystem – Inputs
The tech entrepreneurship ecosystem and its               Benchmarks demonstrate a superior level of                                   FIGURE II: TECH ENTREPRENEURSHIP ECOSYSTEM FRAMEWORK
components constitute the inputs in OC&C’s                network development that is characterized by
tech entrepreneurship success assessment.                 the availability of entrepreneurial networks,                                                                                                                                            Market
                                                          startup associations, accelerators, incubators,                                Financial                 $   Skilled talent             Networks
                                                                                                                                                                                                                                                  potential
One definition of an entrepreneurial                      co-working spaces, technoparks, etc. There                                     capital               $
ecosystem is:                                                                                                                                                      $
                                                          are stronger innovation linkages between
                                                          academia and the private sector such as joint-
“a set of interconnected entrepreneurial                  venture/strategic alliance deals, and industry-
actors, organizations (e.g. firms, venture                university collaborations.
capitalists, business angels, banks), institutions                                                                                                   Culture           Regulations                   ICT infrastructure
(universities, public sector agencies, financial          In the best-practice countries, there is a higher
bodies), and entrepreneurial processes                    individual risk appetite, coupled with cultures
(e.g. the business establishment, growth,                 that are more supportive of entrepreneurship.
levels of ‘blockbuster entrepreneurship’,                 It is easier and less bureaucratic to start and
number of serial entrepreneurs, degree of                 run companies as an entrepreneur, and the
sell-out mentality within firms and levels of             risk of failure is better managed.                                           Source: OC&C analysis
entrepreneurial ambition) which formally
and informally coalesce to connect, mediate               Supportive digital policies – laws related
and govern the performance within the local               to data flow, cybersecurity, data privacy,
entrepreneurial environment.”5                            IP protection, etc. – and strong innovation                                  Role of the government in strengthening the tech
                                                          capacity steered by governments’ R&D
OC&C’s Tech Entrepreneurship Ecosystem                    policies provide a sturdy backbone for the
                                                                                                                                       entrepreneurship ecosystem
Framework (Figure II) presents the attributes             ecosystem. Open foreign trade policies
outlined above, and the way in which they                                                                                              While many actors are involved in the            In the benchmark countries, the shift to
                                                          enable these countries to internationalize their
interact and influence one another. These                                                                                              ecosystem, the role of government                knowledge-based industries has taken place
                                                          businesses.
seven components, working together, provide                                                                                            deserves attention. Government policy            both via favorable policies that support the
the habitat needed to generate successful tech Another fundamental differentiator is reliable                                          can affect all entrepreneurial actors and        development of each component of the
entrepreneurships.                               fixed and mobile internet infrastructures at                                          components of the ecosystem: resource            ecosystem and greater government funding
                                                 affordable prices. Digital policies that support                                      providers, entrepreneurial connectors within     for high-growth firms.6 Governments have
Best-in-class countries are able to offer equity cross-border data flows lead to higher                                                the ecosystem, and the entrepreneurial           played a leading role in successfully facilitating
funding sources in greater volume and variety utilization of efficient, cost-effective global                                          environment of the ecosystem. The                tech entrepreneurship ecosystems through
(i.e. business angels, venture capital firms,    cloud services.                                                                       government’s contribution is important           their impact on all seven components of the
and government investment funds). Deep and                                                                                             because of its direct impact on the ecosystem    ecosystem.
efficient stock markets and the high frequency Lastly, we also see that leading countries                                              through the creation of favorable terms and
of deals make the entrepreneurial challenge      possess considerable (rich) market potential                                          the provision of incentives for high-growth
financially worthwhile and are instrumental      and those that don’t have a big enough                                                startups. Moreover, government exerts
in drawing in more resources – in terms of       market are globally oriented from the start. In                                       its influence on all components to create
funding, skilled talent, and support – into the  the domestic market, consumer digital literacy                                        a constructive environment and facilitate
ecosystem.                                       is of great importance as consumers are then                                          interconnectivity between these components.
                                                 more likely to try new digital products, thus
These countries have a larger number of          creating attractive market conditions for B2C
highly skilled employees and a labor force       companies. In addition, advanced markets
created by education systems and talent          are efficient and competitive, with minimum
attraction initiatives that support tech         barriers of entry for business startups.
entrepreneurship. These ecosystems are
characterized by a greater pool of scientists,
engineers, and research universities that foster
an innovation culture.                             Mason and Brown, Entrepreneurial Ecosystems and Growth-Oriented
                                                          5                                                                                                                               6
                                                                                                                                                                                              Global Entrepreneurship Monitor, Global Report 2016/2017
                                                          Entrepreneurship, OECD LEEP Program and Dutch Ministry of Economic Affairs
                                                          workshop paper, The Hague, Netherlands, Jan 2014.

8   Tech entrepreneurship ecosystem in South Africa					                                                                                                                                                   Tech entrepreneurship ecosystem in South Africa    9
Tech entrepreneurship ecosystem in South Africa 2018 - OC&C ...
Executive summary
South Africa at a glance                                           growth aspirations, and the total contribution                                    1. Financial        $                                    2. Skilled talent
                                                                   of knowledge sectors to the economy.
With a GDP worth USD 294 billion, South                                                                                                              capital         $   $
Africa is the 40th largest economy in the                          The output indicators for innovation creation
world and the third largest in Africa. Gauteng                     – the volume of innovation generated by
Province is at the heart of economic activity,                     the country overall, and the amount of
contributing approx. 35 percent to national                        innovative products and services generated
GDP and around 42 percent to national                              by entrepreneurs – demonstrate that South
employment.6 Western Cape Province                                                                                                         Startups need a mix of funding to support their     South Africa’s history of uneven education
                                                                   Africa outperforms many emerging market                                 launch, growth, and scale. In South Africa, the     means that much the population is still
accounts for 14 percent of the GDP and Cape                        peers, yet is still significantly behind the top
Town is ranked as the most entrepreneurial                                                                                                 Gauteng funding landscape is fueled by the          undereducated, an issue with far-reaching
                                                                   performers. A comparison of South Africa’s                              large amount of government spending and             impacts on employment, entrepreneurship
city in South Africa.7 Income inequality remains                   output performance against the benchmark
one of the highest in the world. The PPP-                                                                                                  government-directed private sector spending,        capability, and overall economic development.
                                                                   set can be found on page 20.                                            with angels and VCs playing a minimal role.         Tech incubators focus on upskilling would-be
adjusted average income of USD 13,000
conceals large differences in income levels and                                                                                            The Western Cape ecosystem is funded by             entrepreneurs, in part to fill these gaps.
                                                                   South African tech entrepreneurship                                     more traditionally configured VCs and angel
78 percent of the population has been poor at                      ecosystem overview – Inputs                                                                                                 To combat this issue, the government focuses
some time.8 The fact that half the population                                                                                              investors, in part due to the large number of
                                                                   South Africa’s tech ecosystem is remarkable for                         high-net-worth individuals who reside in the        on the basics of literacy and math at the
is under the age of 24 is a particular problem,                                                                                                                                                primary level. Poor education foundations
given unemployment at 27%.9                                        its strong government support and the number                            area.
                                                                   of programs that target tech entrepreneurship.                                                                              and low exposure to entrepreneurship have
South Africa’s government agenda is driven                         The government has also found a successful                              The sizable number of Gauteng incubators            meant that there are few skilled developers
by economic inclusion initiatives, with the                        mechanism for stimulating private sector                                doesn’t translate to similar numbers of             for tech entrepreneurship. Immigration
current National Development Plan focusing                         involvement: the EDS initiative, which awards                           angel and VC investments, in part due to            could address this, and the government has
heavily on raising the quality of life of the                      points to private-sector companies that invest                          the relatively weak relationship between            amended its immigration policy for highly
typical South African. Around 11 million                           in their smaller suppliers. As a result, there are                      incubators and angels/VCs. This is partly due       skilled science and mathematics teachers,
new jobs are expected by 2030 and the                              both public and privately funded initiatives                            to the fact that VCs are generally quite risk-      technicians, researchers, and graduates with
government is committed to building the                            that target job creation and increasing SME                             averse in South Africa, which is one reason         high-priority degrees. However, this may not
capacity of individuals and industry, as well as                   capacity through incubation, mentoring, office                          the government created the program 12J,             fully counteract the ‘brain drain’ of 19,000
expanding access to basics such as healthcare,                     space, advisory, grant and other support                                which gives tax relief to investors for investing   skilled professionals to OECD countries.
infrastructure, and transportation.                                to entrepreneurs, particularly those from                               in qualified Venture Capital Companies
                                                                   previously disadvantaged groups.                                        (VCCs). These VCCs must observe a number            Many in the ecosystem see fixing early
South Africa is an attractive destination within                                                                                           of restrictions related to investing in South       education as the single biggest change the
                                                                   Our review of the South African tech                                    African startups, such as the requirement for       government could make to grow the tech
Africa for living, tourism, and conducting                         entrepreneurship ecosystem with key
business, with a strong potential for attracting                                                                                           domestic registration of the startup and off-       ecosystem. Ranked 137th in a survey of
                                                                   participants identified three major areas for                           limit industries, including professional services   education systems in 139 countries, South
regional and even global talent.                                   improvement:                                                            (financial and management consulting) as well       Africa’s poor education system is potentially
The results of tech entrepreneurship – Outputs •                       The foundations of the education system                             as alcohol, tobacco, weapons, and gambling.         the biggest hurdle in the ecosystem.
On measures of tech entrepreneurship                                   are unable to support the development of
                                                                       tech entrepreneurship within South Africa                           While the Western Cape ecosystem resembles          Experienced developers are highly sought
outputs, South Africa ranks below many of the                                                                                              international systems in terms of ambition, in      after, particularly in non-tech industries that
top performing countries, but above several of                         on a broad scale.
                                                                                                                                           the Gauteng ecosystem many entrepreneurs            pay well, which effectively leaves many tech
its emerging market peers.                                         •   The rich network of support services                                are not thinking about the exit options for         startups unable to hire them. Inexperienced
                                                                       offered to young companies are not yet                              their startups. Instead they are focusing on        developers by contrast, find it harder to find
The country’s position suggests that it                                monitored and have not yet managed to                                                                                   placements, suggesting that an opportunity
                                                                                                                                           building businesses that are sustainable in
has good benchmarks to target better                                   ensure maximum impact on entrepreneurs.                                                                                 exists to raise the skills of inexperienced
                                                                                                                                           the long term. In addition, few startups are
performance in all of the economic                                                                                                                                                             developers outside of the university system,
                                                                   •   Much of the support has focused                                     mature enough to IPO on the Johannesburg
contribution indicators used in our analysis –                                                                                                                                                 by fostering a ‘back office’ service capability
                                                                       on creating early-stage startups and                                Stock Exchange (JSE), which has just 3% of
the prevalence of tech startups in the country,                                                                                                                                                for software development that raises the skills
                                                                       entrepreneurs, with little focus on mapping                         tech companies in its listings. As a result, most
the number of exits above USD 100 million,                                                                                                                                                     of existing talent and creates new employment
                                                                       out the full journey of entrepreneurship and                        startups exit via strategic acquisitions, though
the number of ‘unicorns’, entrepreneurs’                                                                                                                                                       opportunities for those with basic skills.
                                                                       creating support initiatives along the way.                         a law in place that makes cross-border IP
                                                                                                                                           acquisition taxable might be limiting options
6
    “Contribution to GDP rising”, Sopa 29.2.2016                   8
                                                                     World Bank. “The World Bank in South Africa: Overview”. http://www.
                                                                                                                                           for startups.
7
    “Economic Performance Indicators for Cape Town” saoga.org.za   worldbank.org/en/country/southafrica/overview (accessed October 25)
                                                                   9
                                                                     OC&C analysis based on Euromonitor
10     Tech entrepreneurship ecosystem in
                                       research
                                          South Africa
                                                – Turkey					                                                                                                                                            Tech entrepreneurship ecosystem in South Africa   11
Tech entrepreneurship ecosystem in South Africa 2018 - OC&C ...
At the university level, the 45 publicly-funded     The ecosystem in the Western Cape more             South African entrepreneurs, particularly           DIGITAL POLICIES
universities teach science, engineering and         closely resembles ecosystems such as those         in the Gauteng ecosystem, are more likely
technology (“SET”) fields and have research         of OECD countries, with far less government        to be lower income and require broader              Digital policies are largely in line with
centers, although the quality of education is       funding and more commercial angel and VC           measures of support to build their business.        international standards, and freedom
not uniform. University technology transfer         funding. Entrepreneurs in the Western Cape         Often supporting up to seven other                  of expression and fair competition are
offices (TTOs) are responsible for transforming     maintain connections to international markets,     household members, the stipends that some           supported by policymakers, with freedom
research into market-ready innovations; yet         often leveraging cultural or familial links to     incubators provide is critical to sustain these     of expression secured in the South African
more work needs to be done to facilitate this       foreign countries such as the US, UK, and          entrepreneurs but it may not be enough.             Constitution and net neutrality outlined in the
transformation.                                     Israel.                                                                                                National Integrated ICT Policy whitepaper.
                                                                                                                                                           Other laws related to cybercrime and
The Western Cape ecosystem seems to be
better developed, with two of the three                                                                            5. Regulations                          data privacy are in line with international
leading South African universities, a highly                                                                                                               standards, though South Africa is finding ways
effective TTO, and an emerging innovation                          4. Culture                                                                              to localize them to align them better with local
specialist capability in the life sciences.                                                                                                                needs.

                                                                                                                                                           Although strong IP protections exist, the
                                                                                                                                                           lack of a centralized system to identify
            3. Networks                                                                                BUSINESS PROCEDURES                                 infringements and high costs of enforcement
                                                                                                                                                           may prevent startups from successfully
                                                    On cultural dimensions associated with             Compared to its neighbors, South                    defending their rights. A dedicated court and
                                                    entrepreneurship, South Africa resembles           Africa’s business regulation is relatively          searchable system could enhance the ability of
                                                    the United States, especially given a focus        straightforward, but bureaucracy may create         startups to defend their IP.
                                                    on individuality, merit, and opportunism.          delays and raise costs. South Africa ranks 74th
                                                    A preference for immediate rewards over            in the World Bank’s Ease of Doing Business          GOVERNMENT R&D POLICIES
The Gauteng tech entrepreneurship support
                                                    long-term gain is in part driven by the level of   assessment, reflecting high regulatory
system is a rich network of innovation-focused
                                                    poverty and dependency in the country, where                                                           Much funding, infrastructure development,
hubs, incubators, accelerators, R&D centers,                                                           mandates and similarly high costs of doing
                                                    the poorest households can number as many                                                              and regulatory focus is directed at R&D, which
and universities. These programs mainly pro-                                                           business for basic business procedures. In one
                                                    as seven members.                                                                                      accounts for 0.7% of South Africa’s GDP.
vide internet access, co-working space, inno-                                                          study 40 percent of firms found government
vation support, mentorship, training, and even      Despite these cultural features, the Total         bureaucracy burdensome enough to limit              Publicly-funded R&D focuses on basic research
stipends to budding entrepreneurs. The large        Entrepreneurship Activity rate is just 6.9%,       business growth. The government has                 and human capital development, while the
number of programs may create some confu-           lower than its emerging market peers.41 This       introduced support services, including              private sector invests for product development
sion in the market, as overlapping initiatives      may be due to a low tolerance for failure,         consulting and registration support to combat       and competitiveness.
may be difficult for startups to navigate, given    though the large number of entrepreneurs           this, but doesn’t yet offer a central portal with
the lack of a single portal that centralizes all    who want to make a social impact may help                                                              Despite a high return and a dedicated focus
                                                                                                       all the required information.
information. And while the sheer number of          offset this, given a lower focus on financial                                                          by government programs and agencies to
support initiatives is impressive, the lack of an   returns.                                           South Africa’s history of economic                  improve the interface between public and
established assessment method means that                                                                                                                   private sector R&D, private R&D spending is
                                                                                                       marginalization is being countered through
the ultimate impact of incubators is unknown.       South Africa’s history has led to a ‘necessity                                                         low. This trend is probably due to the same
                                                                                                       laws designed to protect workers’ rights
One area of concern is mentorship, a standard       driven entrepreneurship’ culture, which is                                                             structural challenges that affect the wider
feature of innovation hubs. Well-funded Eco-                                                           and help prevent exploitation, and via strict
                                                    now being reoriented to an innovation-driven                                                           business environment including political
nomic Supplier Development (ESD) programs           culture. There are few role models for this new    minimum wage and severance requirements.
                                                                                                       But the inflexible nature of these laws makes       uncertainty, poor ICT and transportation
have attracted many mentors and service pro-        type, but there is an opportunity to actively
viders to the ecosystem, yet few truly under-                                                          them difficult for startups to follow, and, as a    infrastructure, bureaucracy, and a skills gap.
                                                    build an entrepreneurship-supportive culture.
stand the needs of entrepreneurs.                   Another cultural element to address is risk        result startups, tend to delay hiring full-time
                                                                                                                                                           South Africa has introduced generous R&D
                                                    aversion, which affects both entrepreneurs and     employees. This runs counter to government
In Gauteng, support service providers                                                                                                                      incentives for the private sector that can give
                                                    investors and might be keeping highly skilled      goals for employment.
collaborate to service startups. As a result,                                                                                                              tax relief up to 150% of qualified spending.
                                                    tech talent from choosing entrepreneurship.
entrepreneurs take advantage of multiple                                                               Bankruptcy protection is available                  New controls designed to reduce application
services and this can be extended for years.                                                           to entrepreneurs, but it can affect an              fraud have made the process so cumbersome
                                                                                                       entrepreneur’s ability to get credit and            that many companies have drastically reduced
                                                                                                       investment for up to 10 years afterwards.           their use of the program and with it their
12   Tech entrepreneurship ecosystem in
                                     research
                                        South Africa
                                              – Turkey					                                                                                                          Tech entrepreneurship ecosystem in South Africa   13
R&D activity. The South African government             South African fixed internet services                 Recommendations designed to strengthen the tech entrepreneurship ecosystem
is working with the World Bank on how to               infrastructure is weak and few citizens have
streamline these procedures.                           at-home coverage. The government has set a            The South African government has been strongly committed to supporting entrepreneurs and
                                                       target of 100% internet coverage in the cities.       innovators in the tech ecosystem with a detailed and thorough offering of resources, funding,
TRADING ACROSS BORDERS                                 Results have been mixed: overall rollout has          private sector incentives, and regulatory oversight. Raising the effectiveness of existing efforts,
                                                       been slow, but a USD 10 million Cape Town             and tailoring incentives to desired outcomes will aid the country in addressing the jobs and
South Africa’s location within Africa and links        project added 500 km of fiber optic network.          innovation priorities. Four areas of focus have been identified:
to Europe and other regions makes it ideal for                                                                                                                                                                           CREATE REGIONAL
                                                                                                                                                    IMPROVE EFFECTIVENESS
testing and exporting innovations targeted             The low-cost nature of cloud services has            FOCUS ON BUILDING THE
                                                                                                                                                    OF ECONOMIC INCLUSION
                                                                                                                                                                                   INTRODUCE GROWTH STAGE
                                                                                                                                                                                                                      INNOVATION LEADERSHIP
                                                                                                            FOUNDATIONAL SKILLS OF                                                  SUPPORT MECHANISMS TO
at low-income populations in other African             made it a leapfrog technology that is attractive       ENTREPRENEURSHIP
                                                                                                                                                        INITIATIVES THAT             PAVE THE WAY FOR TECH
                                                                                                                                                                                                                         BY IMPROVING THE
                                                                                                                                                                                                                       COMMERCIAL OUTLOOK
nations. Yet, cross-border transactions are            to South African public and private sector                                                    FOSTER AND SUPPORT             ENTREPRENEURS TO SCALE
                                                                                                                                                                                                                         FOR INNOVATION
                                                                                                                                                       ENTREPRENEURSHIP
                                                       entities as a way to avoid the high capital
highly regulated, with requirements to report
                                                       requirements of building data centers.
all cross-border payments to the South African
                                                       South Africa now has data centers clustered
Reserve Bank (SARB), and register all foreign          in Johannesburg and Cape Town, with
e-commerce companies for VAT.                          international providers building dedicated
                                                                                                                Improve education                 Maintain focus on inclusion        Create exemptions from
                                                                                                                                                                                                                       Expand the reach and
                                                                                                               equality, via inclusion                                                                                 accessibility of internet
                                                                                                                                                     of the economically            labor regulations for tech
                                                       sites. As much as 93% of the private sector            and teacher education                                                                                     to create a significant
Exchange Control Regulations and IP laws                                                                                                          disadvantaged into Black                   startups                    addressable market
                                                       plans to use cloud computing technology                      programs                      Economic Empowerment
closely monitor and restrict how currency              and the government intends to migrate to the                                                          (BEE)
and IP can cross South Africa’s borders or             technology as part of a 2017 commitment for                                                                                    Shift some support                   Adapt a sector
be acquired by non-public entities. The                cloud-based e-government services.                   Build foundational skills in
                                                                                                                                                                                    mechanisms to growth-            specialization approach to
                                                                                                           reading and math through a
Intellectual Property Rights from Publicly                                                                       literacy program
                                                                                                                                                   Create monitoring systems       stage companies to focus          establish first regional then
                                                                                                                                                  to evaluate the effectiveness   on sustainable job creation            global leadership
Financed Research and Development Act (IPR                                                                                                          of existing programs and
Act) requires all acquirers of publicly-funded                      7. Market potential                                                             identify best practices to
IP to cover all R&D costs before ownership                                                                 Introduce entrepreneurship                share across initiatives                                          Strengthen the interface
                                                                                                              within early education,                                             Cross-fertilize South African       between universities and
can be transferred. Within the private sector,                                                              provided there is a strong                                            ecosystems to leverage best        private sector companies as
                                                                                                                                                                                  practices stimulating growth
South African IP that is acquired by foreign                                                                foundation of reading and                                                                                well as venture capital firms
                                                                                                                       math                         Create ‘one stop shops’
entities, either standalone or within a startup                                                                                                     featuring standardized
acquisition, must be registered as a cross-                                                                                                           information on both           Foster linkages between             Align IP regulation to
                                                                                                             Teach functional business             public and private sector
border capital exchange and approved by                South Africa’s uneven broadband penetration            expertise via certificate
                                                                                                                                                                                     private investors and            incentives for IP licensing
                                                                                                                                                  entrepreneurship programs       innovation hubs to increase
the SARB, which may be subject to taxation.            - 3.2% fixed vs 58.6% mobile subscription              programs to upskill the                                               commercial savviness of
                                                                                                                                                                                                                     revenue and new business
                                                                                                                                                                                                                                starts
Recent amendments have relaxed the                     and only 24% of households with a computer           potential startup workforce                                                support programs
regulations somewhat, but cross-border                 - limits penetration to B2C internet market                                            Reduce bureaucracy through                                             Create linkages to African
regulations are sufficiently tight that many           potential. However, B2B market potential                Fill skill gaps with              end-to-end monitoring                 Review existing tax           markets around innovation,
                                                                                                                                                                                  exemption structure for VCC          to create pathways for
startups register their IP in foreign jurisdictions.   has been promoted through public and                 immigration targeted at             of regulatory impact and
                                                                                                                                                                                    (12J) initiatives to ensure      innovation and tech talent
                                                                                                                                                  targeting bottlenecks
                                                       private sector procurement programs and as           developers and teachers                                                they’re aligned to desired        revenue and new business
                                                       much as 12 percent of South Africa’s GDP is                                                                                  outcomes for investment                     starts
                                                       now spent on small business procurement.
                                                                                                                                                                                  Increase exports and cross-
                                                       These initiatives have been accompanied by                                                                                  border collaborations by
             6. ICT infrastructure                     programs and initiatives to support startups                                                                                supporting growth-stage
                                                       delivering on these commitments. Yet, ‘market                                                                              companies to attract foreign
                                                                                                                                                                                            interest
                                                       access’ is still seen as one of the primary          Legend
                                                       challenges for tech entrepreneurs. Much of            FINANCIAL CAPITAL   SKILLED TALENT        NETWORKS         CULTURE         REGULATIONS       ICT INFRASTRUCTURE MARKET POTENTIAL
                                                       this is due to the structure of the market, where
                                                       large, established companies dominate the           Details of the specific recommendations under each group can be found on page 58.
                                                       private sector and Small, Micro, and Medium
ICT’s contribution to South Africa’s GDP was           Enterprises (SMMEs) contribute just 35 percent       Conclusion
around 3 percent in 2014.47 Mobile data                to GDP.                                              South Africa’s impressive progress is founded                         expanding access to basics such as education,
packages are out of reach for many South
                                                                                                            on an economic inclusion agenda that                                  employment, and ICT services.
Africans, and are both slower and costlier than        South Africa’s unusual mix of culture,
                                                                                                            focuses on creating jobs and opportunities                            Shifting the focus from the number of
in other BRICS countries.                              languages, and socio-demographics makes it
                                                                                                            through innovation and entrepreneurship.                              entrepreneurship programs to their
                                                       well positioned to create a specialist capability
                                                                                                            The scale of this support has the potential to                        effectiveness will ensure that impact
                                                       for solving problems related to poverty, health,
                                                                                                            make South Africa an outsized contributor to                          is maximized and that the aims of the
                                                       and access to products and services.
                                                                                                            global innovation, but first it must continue                         government are met.
                                                                                                            to improve the lives of its citizens by
14   Tech entrepreneurship ecosystem in
                                     research
                                        South Africa
                                              – Turkey					                                                                                                                                     Tech entrepreneurship ecosystem in South Africa    15
Table of contents                                                                 Table of figures

South Africa at a glance                                              			    18   Figure 1. Macroeconomic indicators for South Africa							                        18
                                                                                  Figure 2. Global competitiveness index scores of S. Africa							                 19
The results of tech entrepreneurship - Outputs                   			         20
                                                                                  Figure 3. Profile of Top 100 tech startups in the South African ecosystem				     24
South African tech entrepreneurship ecosystem overview                			    24
                                                                                  Figure 4. Black Economic Empowerment Act of South Africa						                    26
Insights into ecosystem components                                    			    32   Figure 5. Major actors within the South African ecosystem							                  27

 1. Financial capital                                                 			    32   Figure 6. The innovation and technology funding instruments of South Africa				   28
                                                                                  Figure 7. Number of investors per million urban population						                  32
 2. Skilled talent                                                    			    36
                                                                                  Figure 8. Finfind - a portal for startups seeking capital							                  35
 3. Networks                                                          		     40   Figure 9. Financial market development in selected countries						                35

 4. Culture                                                       		         44   Figure 10. TIMSS Maths scores for 10-year-olds								                            37
                                                                                  Figure 11. Quality of scientific research institutions								                    39
 5. Regulations                                                  		          48
                                                                                  Figure 12. Accelerator density										                                          40
 6. ICT infrastructure   		            								                              54   Figure 13. The innovation agency of the Gauteng Province - Innovation Hub				     41
 7. Market potential										                                               58   Figure 14.CSIR links innovations to commercially applicable solutions					        42
                                                                                  Figure 15. University/Industry research collaboration							                      43
Recommendations designed to strengthen the tech entrepreneurship ecosystem   60
                                                                                  Figure 16. Entrepreneurial intentions and perception of e-ship						              46
Conclusion           										                                              66
                                                                                  Figure 17. Cross-border IP transactions and IPR act							                        51
Acknowledgements							                                     			              67   Figure 18. R&D expenditure as a percentage of GDP							                          53

Appendix												                                                         68   Figure 19. Mobile/fixed broadband penetration								                             56
                                                                                  Figure 20. Cloud computing and innovation creation relationship					              57
Disclaimer												                                                       71
                                                                                  Figure 21. Market size											                                                 58
                                                                                  Figure 22. Government procurement of advanced tech products						                 59
                                                                                  Figure 23. Policy recommendations designed to strengthen the South Africa tech
                                                                                            entrepreneurship ecosystem									60
South Africa at a glance
South Africa is the 40th largest economy in                                       for basic income, with government transfers                                     Much of the government’s development efforts                                 government also expects to stimulate job
the world, with a GDP worth USD 294 billion,                                      the main source of income for all but the top                                   relate to reversing the effects of apartheid,                                creation by lowering the cost of doing business
and it’s the third largest in Africa, after Nigeria                               two income quintiles.11 To help combat this                                     which included institutionalized segregation                                 and raising the capabilities of the workforce to
                                                                                  and incentivize living wages, minimum wages                                     and economic inequality along racial lines.                                  produce and commercialize innovation.
and Egypt. Within Africa, it benefits from
developed infrastructure and its economy                                          will come into effect in 2018.11                                                Government programs have therefore focused
                                                                                                                                                                                                                                               After impressive strides in the past two
is largely driven by natural resources such                                                                                                                       on giving opportunities to businesses owned
                                                                                                                                                                                                                                               decades, economic growth and social
as mining of gold, diamonds, and platinum.        The peaceful transition that marked the                                                                         or operated by members of previously                                         improvements appear to be slowing.
In recent years there have been economic          country’s emergence from apartheid ushered                                                                      disadvantaged groups, alongside traditional                                  This suggests a shift in focus from basic
challenges arising from a number of issues        in a new era of development and inclusion.                                                                      development goals, such as increasing                                        development to making existing programs
including a nationwide drought, weak              Free elections, economic inclusion initiatives,                                                                 economic growth, improving access to health                                  work better.
consumer demand, and political uncertainty.       and relative peace between ethnic groups                                                                        and education, and introducing improvements
Taken together, GDP per capita shrunk by a        has helped the country recover from its                                                                         to infrastructure. These policies, though
                                                                                                                                                                                                                                               FIGURE 2. GLOBAL COMPETITIVENESS INDEX
modest 1% from 2014-2017.10,11                    past, and currently it serves as an attractive                                                                  restrictive at times, are expected to develop                                SCORES OF S. AFRICA
                                                  destination within Africa for living, tourism,                                                                  as the country evolves and matures. Moderate
South Africa’s population of 55 million has a     and conducting business. Since the 1990s,                                                                       political instability and corruption, as well as                                                                  Score          Rank
                                                                                                                                                                  power and wealth concentration continue to                                                                        (1-7)          (138)
striking amount of diversity and the country      the government has been working actively to
boasts 11 official languages. The average         incorporate more South Africans into formal                                                                     exist, albeit at lower levels, despite government
                                                                                                                                                                                                                                                GLOBAL
income of PPP-adjusted USD 13,000 conceals employment. This is especially critical given                                                                          attempts to stimulate development and
                                                                                                                                                                                                                                                COMPETITIVENESS INDEX               4.5            47
large differences in income levels and 78         that half the population is under the age of 24                                                                 economic growth.
percent of the population has been poor “at       13
                                                    , and the unemployment rate is 27%.14 There
least once”. Income inequality remains one of is evidence for successful social programs –
            12                                                                                                                                                    High unemployment at 27 percent is the most
                                                                                                                                                                                                                                                INSTITUTIONS
the highest in the world, with a Gini coefficient poverty has been halved from 34% to 17%                                                                         pressing social issue.13 The swelling workforce
                                                                                                                                                                  is overwhelming the number of new jobs                                        The quality of legal and
of 0.69 and with the wealthiest 20% of the        since 1996 by introducing social welfare                                                                                                                                                      administrative framework
                                                                                                                                                                  created with 2.6 youths entering employment
population responsible for more than 65% of       programs. This was achieved by creating a                                                                                                                                                     that regulates interactions         4.5            40
                                                                                                                                                                  for every adult leaving, as indicated by a ratio
the country’s consumption.8 Lower-income          more favorable economic environment, and                                                                        of the population aged 15-19 to those aged 55-
                                                                                                                                                                                                                                                between government, firms
citizens are heavily reliant on the government    expanding access to housing.12                                                                                                                                                                and people
                                                                                                                                                                  59.9 In 2017, only 31,000 new jobs were created
                                                                                                                                                                  for a workforce that increased by 427,000.11
                                                                                                                                                                  The large differences between groups in                                       INFRASTRUCTURE
FIGURE 1. MACROECONOMIC INDICATORS FOR SOUTH AFRICA
                                                                                                                                                                  access to education have also limited the                                     Existence of extensive and
                                                                                                                                                                  ability to raise employment levels and create                                 efficient infrastructure to         4.2            64
                                           Value             Rank                                              Percentage                                         entrepreneurship success.                                                     supply required services
                                                             (192)
 GDP (USD), 2016
                                                                                                                                                                  The business environment is large and                                         MARKET SIZE
                                           294 B             39             SME contribution to                                                                   varied, though a history of mining and natural
                                                                                                               36%                                                                                                                              Size of the economy
                                                                            GDP, 2014                                                                             resources still remains a critical part of the                                                                    4.9            30
 GDP per capita                                                             Consumer expenditure                                                                  economy. SMMEs make up just 35% of GDP. 6
                                           13 K              89
 (PPP adj. USD), 2016                                                       as a % of GDP, 2016                60%
                                                                                                                                                                  The National Development Plan currently in
                                                                                                                                                                  effect focuses heavily on raising the quality of                              MACROECONOMIC
 Population (millions),
                                           55                25             Stock market cap as a                                                                                                                                               ENVIRONMENT
 2016
                                                                            % of GDP, 2015                     323%
                                                                                                                                                                  life of the typical South African, with a target                                                                  4.5            79
                                                                                                                                                                  of 11 million new jobs by 2030, building                                      Stability of the economy
 Rate of population                                                                                                                                               the capacity of individuals and industry, and
 aged 15-19 over those
                                           2.60                             Stock market traded as                                                                expanding access to basics such as healthcare,                                GOODS MARKET
 aged 55-59, 2016                                                                                              137%
                                                                            a % of GDP, 2015                                                                      infrastructure, and transportation.15 The                                     EFFICIENCY
                                                                                                                                                                                                                                                Intensity of local
                                                                                                                                                                                                                                                competition, ease of
                                                                                                                                                                                                                                                                                    4.8            28
Source: IMF, World Bank, Global Entrepreneurship Monitor, Euromonitor, AT                                                                                                                                                                       doing business, tax rates,
Kearney, Economist, World Economic Forum                                          10
                                                                                     International Monetary Fund. “World Economic Outlook October 2017”.          15
                                                                                                                                                                    Endcode. “Legal and Policy Landscape Impacting Entrepreneurship and Tech    imports ratio and buyer
                                                                                  https://www.imf.org/external/pubs/ft/weo/2017/02/weodata/index.aspx             Entrepreneurship in South Africa”. October 2017                               sophistication in a country
                                                                                  (accessed November 9, 2017)
                                                                                  11
                                                                                     OECD Economic Surveys: South Africa. July 2017
                                                                                  12
                                                                                     World Bank. “South Africa Economic Update: Innovation for Productivity and
                                                                                  Inclusiveness”. September 2017
                                                                                  13
                                                                                     Global Entrepreneurship and Development Institute. “The entrepreneurial
                                                                                  ecosystem of South Africa: A strategy for global leadership.”
                                                                                  14
                                                                                     World Bank Dataset. Unemployment, total (% of total labor force) (modeled
                                                                                  ILO)
18    Tech entrepreneurship ecosystem in South Africa					                                                                                                                                                                                              Tech entrepreneurship ecosystem in South Africa    19
South Africa vs.
                                                                                    benchmark countries
                                                                                    TECH STARTUP PREVALENCE IN A COUNTRYa                                                Tech startup longevity
                                                                                                                                                                         (1=highest, 0= lowest)
                                                                                    PER MILLION URBAN POPULATION
                                                                                    ISRAEL (IL)                                                                       214           0.49
                                                                                    SINGAPORE (SG)                                                                 176              0.68
                                                                                    UNITED STATES (US)                                                      160                     0.48

The results of tech                                                                 UNITED KINGDOM (UK)
                                                                                    FINLAND (FI)                                                     101
                                                                                                                                                          122                       0.53
                                                                                                                                                                                    0.68

entrepreneurship
                                                                                    INDIA (IN)                                                      92                              0.59
                                                                                    SPAIN (ES)                                               50                                     0.57
                                                                                    UNITED ARAB EMIRATES (AE)                            40                                         0.68

– Outputs                                                                           GERMANY (DE)
                                                                                    ROMANIA (RO)                                     24
                                                                                                                                        34                                          0.68
                                                                                                                                                                                    0.58
                                                                                    KOREA (KR)                                     20                                               0.32
On measures of tech entrepreneurship                                                CHILE (CL)                                     20                                               0.41
outputs, South Africa ranks below many of the                                       POLAND (PL)                                    19                                               0.76
top performing countries, but above several                                         TURKEY (TR)                                    16                                               0.16
of its emerging market peers. The country’s                                         CHINA (CN)                                  12                                                  0.57
position suggests that it has good benchmarks                                       SOUTH AFRICA (ZA)                          10                                                   0.36
to target for better performance in all of the                                      BRAZIL (BR)                            8                                                        0.37

                                                            ECONOMIC CONTRIBUTION
economic contribution indicators used in                                            RUSSIA (RU)                            6                                                        0.42
our analysis – the prevalence of tech startups                                      NIGERIA (NG)                           3                                                        0.60
in the country, the number of exits above                                           INDONESIA (ID)                         3                                                        0.68
USD 100 million, the number of ‘unicorns’,                                          SAUDI ARABIA (SA)                      2                                                        0.76
entrepreneurs’ growth aspirations, and the
total contribution of knowledge sectors to the                                      NUMBER OF EXITS OVER USD 100M
economy. The output indicators for innovation                                       2012-16
creation – the volume of innovation generated                                       UNITED STATES (US)                                                               1,946
by the country overall, and the amount of                                           UNITED KINGDOM (UK)                                                   215
innovative products and services generated by                                       GERMANY (DE)                                                         65
entrepreneurs – demonstrate that South Africa                                       CHINA (CN)                                                  49
outperforms many of its emerging market                                             INDIA (IN)                                                 40
peers, yet it still has a way to go to match the                                    ISRAEL (IL)                                            37
top performers.                                                                     BRAZIL (BR)                                           20
                                                                                    SPAIN (ES)                                            16
                                                                                    SINGAPORE (SG)                                      15
                                                                                    FINLAND (FI)                                       10
                                                                                    RUSSIA (RU)                                     7
                                                                                    KOREA (KR)                                     6
                                                                                    TURKEY (TR)                                    6
                                                                                    SOUTH AFRICA (ZA)                              6
                                                                                    POLAND (PL)                                    5                          Other countries in scope of tech
                                                                                    INDONESIA (ID)                              5                             entrepreneurship study

                                                                                    CHILE (CL)                                 4
                                                                                    NIGERIA (NG)                               3
                                                                                    UNITED ARAB EMIRATES                   2
                                                                                    SAUDI ARABIA (SA)                      1       Note: The definitions of the output indicators can be found
                                                                                    ROMANIA (RO)                0      0           in the appendix
                                                                                                                                   a. Density shows proportional values among ecosystems.
                                                                                                                                   Scales are only comparable within each indicator

20   Tech entrepreneurship ecosystem in South Africa					                                                           Tech entrepreneurship ecosystem in South Africa                     21
ENTREPRENEUR’S GROWTH ASPIRATION SCOREb                                                                                                                                                                          INNOVATIVE OUTPUT DENSITY
                        A scoring based on percentage of entrepreneurs with a sophisticated growth strategy aspiring                                                                                                                     The abundance of knowledge creation and intangible assets in a country (out of 100)
                        to grow at least 50% in the next 5 years and attract VC funding (1=highest, 0=lowest)
                                                                                                                                                                                                                                         75        69        67
                         1.0      1.0      1.0                                                                                                                                                                                                                     60      59        57
                                                    0.8           0.8                 0.8       0.8                                                                                                                                                                                           52
                                                                                                      0.7   0.6     0.6   0.6    0.6                                                                                                                                                                 47      44
                                                                                                                                        0.5     0.5      0.4       0.4      0.3                                                                                                                                       38       38         35
                                                                                                                                                                                     0.2     0.2      0.2                                                                                                                                       29
                                                                                                                                                                                                            0.1                                                                                                                                           28    27    27    25        25    22
                                                                                                                                                                                                                                                                                                                                                                                                  20    18

                          SG       AE       US       SA                IL                  CL   TR    UK    FI      DE    CN      RO    ZA       PL        RU       KR       ES       NG         IN   BR    ID
ECONOMIC CONTRIBUTION

                                                                                                                                                                                                                  INNOVATION CREATION
                         44.2 30.7 34.2 5.3                        22.1 34.2 48.1 28.4 17.7 21.5 26.7 39.2 27.6 28.3 18.7 21.6                                              9.7      20.9 5.2         4.4   2.4

                         HIGH JOB CREATION EXPECTATION (% OF ENTREPRENEURS)                                                                                                                                                              KR        CN      DE      UK       FI      US        IL     TR      ES       SG       RU         PL    CL        ZA    BR    IN    AE        RO    SA    ID    NG
                                                                                                                                          Other countries in scope of tech entrepreneurship study

                        ABILITY TO CREATE GLOBALLY RECOGNIZED                                                                                 CONTRIBUTION OF KNOWLEDGE
                        “UNICORNS”c                                                                                                           SECTORS TO THE ECONOMY                                                                     ENTREPRENEURIAL INNOVATION CREATIONd
                        Technology start-ups with over USD 1 billion valuation in benchmark countries                                         ICT & High-tech exports, international data flows and                                      Rate of entrepreneurs involved in new product or service creation
                                                                                                                                              IP receipts (1=highest, 0=lowest)

                                                                                                             Benchmark country set
                                                                                                                                                                                                                                            57%
                                                                                                                                                                                                                                                        37%       33%       33%          31%       30%      29%       29%      28%
                                                                                                                                                                                                  0                                                                                                                                       28%    27% 25% 24%
                                                        P O W E R E D b y S E R V I C E™                          279           1,164                                                                                                                                                                                                                        22% 18% 13% 12%
                                                                                                                                                                                          0.33                                                                                                                                                                               5%

                                                                                                                                 $                                                  0.67
                                                                                                                  Total      Total
                                                                                                                             value                                              1
                                                                                                                 number
                                                                                                                            (USD B)                                                                                                           CL        US        UK         KR          TR        IL        FI       CN         IN        PL        AE    DE    ES    ZA        ID    SA    BR    RU

                                                                                                                                                                                                                                         Other countries in scope of tech entrepreneurship study

                        Note: The definitions of the output indicators can be found in the appendix
                        b. A scoring based on percentage of entrepreneurs with a sophisticated growth strategy aspiring to grow at least 50% in the next 5 years and attract VC funding
                        c. Unicorns in tech-related categories are taken into consideration
                                                                                                                                                                                                                                        Note: The definitions of the output indicators can be found in the appendix
                                                                                                                                                                                                                                        d. Some benchmark set countries are not shown due to data availability
                                                                                                                                                                                                                                        Source: OC&C analysis based on World Bank, GEM, GEDI, Crunchbase, INSEAD, McKinsey, CB Insights

                        22   Tech entrepreneurship ecosystem in South Africa					                                                                                                                                                                                                                                                                     Tech entrepreneurship ecosystem in South Africa    23
South Africa tech
entrepreneurship ecosystem
The South African startup ecosystem is one of                              In South Africa, two types of tech                                         At the other end of the country the Western        Black Economic Empowerment has been a
the most vibrant in Africa, producing a number                             entrepreneurship ecosystems operate, each                                  Cape is home to the thriving Cape Town and         powerful initiative that is shaping the economy
of innovative companies and serving as a                                   with its unique players, drivers, and market                               Stellenbosch ecosystems, both known for            as well as the private and public sectors. As
destination for entrepreneurs who want to start                            focus. The Johannesburg/Pretoria ecosystem                                 their innovation focus and more international      a program designed to promote economic
their own ventures. Given the need to reduce                               in Gauteng Province is run by government                                   ambitions. The Cape Town ecosystem is              inclusion, it functions as a point-based system
unemployment and inequality through wealth                                 investment as well as private sector funds                                 by some calculations twice the size of the         to allocate preference for government tenders
creation, the government has recognized                                    directed toward entrepreneurship as part                                   Gauteng ecosystem.12 The funding landscape         to companies that are owned or managed by
the important role that startups and SMMEs                                 of government programs. Johannesburg’s                                     in the Western Cape more closely resembles         South Africans from previously disadvantaged
can play, and has developed a sophisticated                                status as an entrepreneurship hub is                                       that of more mature ecosystems, made up of         groups (referred to as “black”, though not
infrastructure around these companies. At                                  gaining international prominence and the                                   angel investors, family offices, and venture       necessarily of African heritage). Perhaps no
35%, SMMEs make up a particularly low                                      city was home to 180 startup events in                                     capitalists rather than government funding.        other program has had as large an impact
proportion of the economy for an economy                                   2016. It also hosted the prestigious Global                                                                                   on the growth and shape of South African
of South Africa’s size, and this number may be                             Entrepreneurship Congress 2017.12 Pretoria’s                               Given the strong government involvement            industry. However, the broad approach used
declining.8 This is a problem for job creation,                            location as one of the seats of government                                 in the Gauteng ecosystem, the ecosystem            to allocate points and give preference may
as their link to reducing unemployment and                                 is key to this status, which is why it is at the                           in this province is more closely examined.         be further improved to redistribute wealth to
income inequality is strong.12                                             center of the country’s efforts for economic                               While the Cape Town ecosystem has a larger         the most economically disadvantaged South
                                                                           development via entrepreneurship.                                          projected number of startups, it functions         Africans.
                                                                                                                                                      largely independently and is less reliant on the
                                                                                                                                                      government.                                        Similarly, the Enterprise and Supplier
                                                                                                                                                                                                         Development (ESD) program creates
                                                                                                                                                      The South African government’s mandates            incentives for established companies to
                                                                                                                                                      to improve the economy include raising             invest in the training and development of
 FIGURE 3. PROFILE OF TOP 100 TECH STARTUPS IN THE SOUTH AFRICAN ECOSYSTEM                                                                            employment levels, increasing its debt rating,     their smaller supply chain participants, either
                                                                                                                                                      and strengthening governance. Alongside            directly or indirectly via ESD providers. Large
     Business Model Breakdown                                Location Breakdown                           Sector Breakdown                            this, the government is also focused on            companies must spend 3 percent of annual
                                                                                                                                                      the economic inclusion of previously               profits on suppliers included in the program.
      Mixed
                                                             Others                               SaaS & Iaas                                         disadvantaged groups. Two related initiatives      This program is the largest driver of funding
                                                                                                                                                      – the Black Economic Empowerment (BEE)             for the country’s large number of innovation
C2C
            15%                                                   14%                                             42%                                 and Economic Supplier Development (ESD)            hubs and incubators, unlocking ZAR 12 billion
       2%                                                                                                                                             programs – are key to this agenda. Though not      (USD 900 million) in capital for companies to
                                                                                                                                      Advertising &
                                                                                                                               11%    Big data        exclusively directed at the tech and innovation    fund empowerment initiatives.16
                              44%           B2B
                                                            28%                                                                                       sectors, these programs have triggered
                                                                                         Marketplace   16%                    9%                      significant improvements in the Gauteng tech
         39%                                                                                                                         Content (VMG)
                                                                          58%                                                                         startup ecosystem.
                                                                                                                        7%
                                             Johannesburg                                                       6% 7% 2%
      B2C                                                                    Cape Town                                         e-finance
                                                                                                       e-retail           Social platforms
                                                                                                                  High tech

VMG: Video, Music, Games
Source: OC&C analysis based on Crunchbase                                                                                                                                                                16
                                                                                                                                                                                                           “First National Bank, Endeavor South Africa. “The Entrepreneurial Dialogues:
                                                                                                                                                                                                         State of Entrepreneurship in South Africa”. http://sablenetwork.com/pdf/The%20
                                                                                                                                                                                                         Entrepreneurial%20Dialogues%20-%20State%20of%20Entrepreneurship%20
                                                                                                                                                                                                         in%20South%20Africa.pdf (accessed October 26, 2017)

24    Tech entrepreneurship ecosystem in South Africa					                                                                                                                                                              Tech entrepreneurship ecosystem in South Africa           25
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