Why Venture Capital In SA Is Crucial For The Growth Of Our Economy

Why Venture Capital In South Africa Is Crucial For The Growth Of Our Economy

Alexis van Schalkwyk
March 1, 2023
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Why Venture Capital In South Africa Is Crucial For The Growth Of Our Economy

Over the few recent years, South Africa’s ailing economy has had to undergo a wide variety of hardships. Even worse, at this particular time, many investors have become very apprehensive over the nation’s government, and more particularly it's leadership. Yet, in the midst of all these staggering setbacks and bad financial news, the local startup scenario in Johannesburg and Cape Town has become a beacon of hope. These firms are noted for having resiliently weathered off the various economic challenges the country has endured, and are now poised to play key roles in boosting global investor confidence. Indeed, an increase in venture capital in South Africa can be exactly what the doctor ordered. Nevertheless, with South Africa’s ailing economy, which registered a dismal 0.7% growth in 2016, this can be justifiably deemed as an overly optimistic point of view at face value. In the eyes of many financial pundits, South Africa’s private sector is not in a position of boosting global investor confidence. Still, when properly funded, the startups in Africa’s most sophisticated economy, can and will be able to inject some revitalising life into it. Well then, here are a few valid reasons why venture capital is crucial to the exponential growth of South Africa’s economy.

South Africa’s Startup Scene Has Endless Economic Growth Potential

Typically, the startup scene in South Africa is very often than not, downplayed. A big number of global venture capitalists are more willing to invest into the continent’s flourishing tech hubs, predominantly Kenya’s Nairobi and Nigeria’s Lagos. Yet despite this, a very significant issue worth noting is the fact that South Africa has been able to produce a number of globally competitive startups. Some of the most prominent of these businesses include, ‘Where Is My Transport,’ which has recently extended its operations to the UK. While VIGO has managed to find its way into the Asian market. Another notable example is SweepSouth, that became the nation’s very first startup that was able to catch the eyes of up to 500 different businesses in the US’s fabled Silicon Valley. At the same time, another critical factor that can showcase South African startups’ under-exploited potential is the fact that this particular sector managed to raise over $50 million in revenues in the year 2015. This was, most definitely the highest revenue generated by startups in the entire African continent. So, with the right venture capital support, South Africa can turn around its besieged economy in an extremely stress-free manner.

The current dismal Rand performance against the dollar can be an excellent motivation to South Africa’s startup scene. With the nation’s currency losing its strength to global currencies, including the US dollar, a ray of hope has shined for the local startup sector. First and foremost, these business establishments are now able to launch their operations at markedly decreased costs. The hope that is riding on this principle is South African startups being in a position of realising substantial returns on investment (ROI). Those startups which possess the potential of selling their products or services internationally, particularly in the western markets, are now in a very excellent position. Of late, there has been a growing preference among venture capitalists to invest in businesses that have displayed the capability to sell well in foreign nations. In turn, this naturally implies that such types of startups can continue to grow, even when operating within tough economic circumstances. There happens to be quite a considerable number of South African startups, like the ones listed above, which have learnt the ropes of the global business game in a remarkably quick way. These businesses have also managed to gain the all important confidence in their unique ability to launch their fledgling operations internationally. Therefore, with the right kind of funding, these companies can certainly play a vital role in reversing the downward trend of the South African economy. While more importantly, they will be able to create more jobs for the nation’s unemployed, which is crucial during the tough times.

There are numerous instances, on a global scale, where tech startups have managed to grow and thrive amidst tough economic backgrounds. Generally speaking, when the markets are tough, customer feedback is usually at its height. With such feedback, companies are able to fully focus on solving their clients’ distinctive problems with much more innovative solutions. For your information, this has been, for decades, the guiding principle of many startups operating from the highly acclaimed California Silicon Valley. South Africa’s answer to Silicon Valley happens to be the Silicon Cape Initiative, which was incepted in the year 2009. The Silicon Cape Initiative is now the leading proponent of innovation being able to thrive amidst economic turmoil in South Africa. Unlike what most would expect, this organisation does not invest in startups itself. Rather, it carries out its operations by facilitating excellent connections between promising South African tech entrepreneurs and global venture capitalists. The Silicon Cape Initiative, for the most part, concentrates on the information communication technology (ICT) industry. As a direct result of its invaluable efforts, a growing percentage of substantial business deals have been sealed in the country’s Western Cape region. While this South African business hub is small and even young at the moment, it is indeed thriving and more to the point, expanding. Within the few coming years, the Silicon Cape Initiative is seen to be a significant player in the growth of the South African economy. Especially if it continues to receive support from the government, corporate entities, the South Africa academia and even private individuals.

‘The Africa Rise’

In conclusion, what is now labelled as the ‘Africa Rising bet’ has witnessed a big number of venture capitalists starting to invest in the continent with long-term expectations. The idea behind this theory is riding on the hope that the middle class in African nations, South Africa included, will, in the long run, evolve into a robust consumer market. This is undoubtedly an optimistic point of view, but one that can prove to be a game changer if it happens as anticipated. Africa now has a fast-growing middle class,  according to Standard Bank, around 60m Africans have an income of $3,000 a year, and it is predicted that 100m will in 2015. The rate of foreign investment has soared around tenfold in the past decade.With the right funding for  South African startups, the Africa rising bet will certainly prove to be a reality that can boost the nation’s ailing economy.

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