Creating an ecosystem in which SA startups can thrive

Reducing red tape, specialising visas, and reviewing the labour market regulations are steps in the right direction to create a thriving startup ecosystem.

On Thursday, 10 February, President Cyril Ramaphosa, in his annual State of the Nation Address, laid out several plans to create a business environment that will enable South African startups – including the development of a startup visa and the reduction of red tape for small businesses. These steps will empower startups significantly, says Matsi Modise, Steering Committee Chairperson for the South African Startup Act Movement.

This Movement is dedicated to collaborating with the broader entrepreneurship ecosystem and the government, to co-create a more conducive environment for startups to start, grow and scale their businesses. Part of this is done through advocating for the development or refinement of policies that support favourable change.

President Ramaphosa announced that a comprehensive review of the work visa system is currently under way and is exploring the possibility of new visa categories that could enable economic growth, such as a startup visa and a remote working visa. The government will also be working to improve the business environment for companies of all sizes through a dedicated capacity in the Presidency to reduce red tape, President Ramaphosa said.

“This announcement is very progressive; a positive step in the right direction. It illustrates that stakeholders who have been engaging with the Presidency, around the challenges that startups face, have been heard. It shows the Presidency’s intention to create an ecosystem that advances entrepreneurial activity in the country,” says Modise.

“On behalf of the South African Startup Act Steering Committee, we are pleased with our constructive discussions with National Treasury. Their team continues to look for ways to adjust legislation to support startups across the nation, which is key to job creation, without compromising the fiscus. These adjustments include further progressing the loop-structure revision published in January 2021, accelerating the exchange control approval process and deferring capital gains tax until future liquidity event among others.”

An enabling environment

As President Ramaphosa stated during his address, more than 70% of the workforce is employed in the Small and Medium Enterprise sector. Small businesses, micro-businesses and informal businesses are the ones that “create the most jobs and provide the most opportunities for poor people to earn a living”.

To encourage the startup sector, we need powerful legislation that will create an enabling environment for key economic drivers. One of the barriers against the expansion of the startup environment is the limitations of the South African business visa which currently does not extend beyond 90 days. This prevents business professionals, as well as potential investors, from conducting business locally. The consequence of this is that local startups are often unable to benefit from international funding and investments needed to scale their businesses.

However, following the announcement made by President Ramaphosa, the government will be reviewing the current visa processes to modernise them and make them more conducive to an enabling startup environment. This will be done through the introduction of a startup visa and a remote working visa.

The startup visa and remote working visa is essentially a travel permit that will allow business professionals to stay in and travel across South Africa for longer than three months, provided that they are able to produce proof of their business transactions or employment. The government is expected to streamline the process to reduce the paperwork and requirements through an e-visa portal. In addition to extending the stay of travelling business professionals, the proposed visas may require applicants to provide evidence of employment or proof of registered business abroad, as well evidence of a sufficient income. The new visa may also make allowances for the applicant’s dependents to accompany them during their stay.

Further recommendations from the President includes expanding the criteria for participation in the Employment changes to the tax laws including an amendment to the Employment Tax Incentive (ETI) that refined the criteria for businesses to benefit from the ETI. These will take effect in March.

The government will also be reviewing the Business Act and other legislation that affects small businesses in an effort to reduce the regulatory burden on informal businesses. More detail around these changes is expected to be made public during or after the 2022 Budget Speech.

“President Ramaphosa summed up the challenge facing startups in his address: ‘There are too many regulations in this country that are unduly complicated, costly and difficult to comply with’. While we welcome the announced reforms by President Ramaphosa, we understand that the government alone cannot do this by itself. We have to collaborate and co-create a conducive ecosystem and be part of the solution. The announcement is a positive step in the right direction, showing political will to create an enabling environment for high-impact startups. We will continue to engage with the government and offer advice based on real-life experiences and challenges the startup ecosystem faces. We have valuable input to offer a voice for those on the ground, and we look forward to helping shape South Africa’s long-term approach to building a thriving startup ecosystem,” says Modise.

About the South African Startup Act Movement

The concept of having a Startup Act in South Africa was born at the AfricArena Conference in November 2019. The months following the conference saw the formation of the Startup Act Steering Committee to guide the process toward a Startup Act, and the ecosystem selected SiMODiSA, an entrepreneurship non-profit organization, to be the secretariat of this endeavour. The collective driving the movement represents a part of the South African entrepreneurship ecosystem, namely i4Policy, Endeavor South Africa, Silicon Cape, Southern African Venture Capital & Private Equity Association (SAVCA), The Loudhailer, The Digital Collective Africa and Wesgro, with support from the World Bank and the UK-South Africa Tech Hub, a UK government initiative delivered by the British High Commission.

The Startup Act is built on the knowledge that not all small businesses are going to develop into enterprises that drive economic growth and jobs creation, but there needs to be an ecosystem that will encourage the development of high-impact, high-growth startups. The Act is a call to the President of South Africa to unleash the growth and innovation embedded in our entrepreneurs and youth.

Its mission is to unlock the full potential of entrepreneurial skills of South Africans through policy alterations or additions; to promote the growth of new innovative enterprises via supportive incentives; to create a fair and accessible framework that can identify growing and promising enterprises; and to clarify the responsibilities of the Ministry charged with administering the requirements of the Act.

For more information, go to https://www.startupact.co.za/

Useful resources:
SiMODiSA is a collaboration between several start-up ecosystem stakeholders with a common purpose of exploring ways to accelerate start-up success in SA.
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