SA needs a dedicated and comprehensive law to facilitate the development of start-up companies along the lines proposed by the AU, experts told parliament’s trade, industry and competition committee Friday.
The committee investigated the issue with parliament’s legal advisers and other departments.
Start-up expert and lawyer Aalia Manie told MPs the law which would define what constituted a start-up should address SA’s exchange control regulations that inhibit foreign direct investment, protect and enable the commercialisation of intellectual property rights, provide tax incentives to lower the cost of capital and introduce special start-up visas to attract foreign skills.
According to Marie Wilke, the head of public policy and regulatory affairs at Africa Practice, SA’s fragmented policies and complex regulations hampered the growth of and investment in start-ups.
A start-up act movement has been created consisting of start-ups, industry associations, academics, black entrepreneurs, investors and local venture capital companies. Chairperson of the movement Matsi Modise told MPs that SA had fewer successful start-ups than it could have and the aim was to get the endorsement of the department of trade, industry & competition to progress policy for high growth, high-impact start-ups in SA.
“We need more and more of such companies,” she said.
Wilke emphasised that start-ups were not the same as small and medium enterprises, but were innovative, capital intensive businesses which dedicate substantial resources to researching and developing technology enabled products and services in the process generating valuable intellectual property assets.
African countries which already have dedicated start-up legislation include Nigeria, Democratic Republic of Congo, Tunisia, Senegal, Togo and Ivory Coast with several others drafting laws. The AU commission has developed a start-up model law and policy framework at the instigation of heads of state in 2023. The model and framework were adopted by the AU council of trade ministers in July.
A Southern African conference on start-up regulation was held last week.
Manie noted that SA was a less attractive destination for start-ups than its counterparts abroad. This was clear from SA’s drop in the World Bank rankings on the ease of doing business.
Technology entrepreneur and cofounder of global training platform Go 1 Melvyn Lubega noted that it was more expensive to build a start-up in SA than other African markets given SA’s costly exchange control and IP legislation. There was also very limited catalytic funding from government for start-ups and no start-up visas for highly skilled foreigners.
Lubega said the company, which has over R5bn in revenue, had raised about $450m mainly from international investors. However, in seeking foreign funding it had come up against the obstacle of foreign exchange controls which hindered its growth.
Katlego Maphai, the CEO and cofounder of Yoco, a digital payment platform for small businesses which is now serving over 200,000 businesses in the country, also mentioned restrictive, complex foreign exchange controls, the difficulty in accessing foreign skills, restrictive legislation and an expensive regulatory burden. The company had raised $150m, most of it foreign direct investment. To assist in its capital raising it had had to establish a holding company in Mauritius.
DA spokesperson on trade, industry and competition Toby Chance said the AU blueprint had provided a “phenomenal blueprint to allow us to fast-track the process in SA.” Drafting a bill would require input from several departments, Chance said.
EFF MP Mbuyeseni Ndlozi suggested the establishment of a special economic zone for start-ups and accessing Public Investment Corporation and pension fund resources for venture capital projects.
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