Given the size of its economy, its infrastructure and level of continued investment, South Africa should have a far stronger tech entrepreneurship ecosystem. However, research commissioned by Google South Africa shows that the country lacks a solid foundation for this ecosystem to thrive – and that foundation is education.
Research conducted by management consulting firm OC&C stated the country's education system is unable to support broad-based tech entrepreneurship, and there is a lack of monitoring in the networks of support offered to young entrepreneurs, and of programmes focused on mapping out the full journey of entrepreneurship.
While South Africa, Nigeria and Kenya remained the top three investment destinations in terms of African tech start-ups for the third consecutive year, for the first time the amount of funding secured by Nigerian start-ups overtook South Africa in 2017, according to Disrupt Africa Tech Startups Funding Report 2017.
Gabriella Mulligan, co-founder of Disrupt Africa, said, "While typically in past years almost all the funding has gone to start-ups in the top three countries (South Africa, Nigeria, Kenya), the proportion of funding going to these countries is rapidly declining ... this means more and more money is going to alternative markets around Africa - showing that investors are no longer confined to these traditional hubs, but are looking continent-wide for talent and business opportunities. The pan-African ecosystem is really coming into its own."
Fortune Mgwili-Sibanda, Public Policy & Government Relations manager for Google South Africa, said there are other factors that impact South Africa's ecosystem, most notably attention to STEM education.
"South Africa ranks very poorly against its peers in terms of its education system, and ranks even lower when it comes to STEM education. Pupils across the country perform poorly in everything from basic literacy to mathematics, with school leavers routinely unprepared to enter the workforce. Many of those same issues, coupled with a lack of exposure to successful entrepreneurs, also mean the country is failing to equip its young people to become tech entrepreneurs. The foundations of our education system are unable to support the development of tech entrepreneurship within South Africa on a broad scale," said Mgwili-Sibanda.
He also highlighted the need for a more flexible regulatory framework (on issues like inflexible IP and labour laws), outdated copyright laws, IP and an overly restrictive exchange regime "that enable business growth and development; and the need for affordable ICT infrastructure to enable entrepreneurs to easily access consumer markets."
Mgwili-Sibanda said there were results in the research that took him by surprise, including the extent to which the Gauteng and Western Cape ecosystems differ.
"Entrepreneurs in the Gauteng ecosystem are more focused on self-employment, and entrepreneurs in the Western Cape on growth and scale. Both sets of entrepreneurs disproportionately start companies with social impact. But the ecosystems have very different support systems, structures, involvement by government and corporates, and investment landscape. Yet many entrepreneurs go back and forth between them to leverage the support network of Cape Town and the market opportunities of Gauteng," he said.
He also mentioned the strong links that South Africa has with other ecosystems including New York, Silicon Valley, London, and Tel Aviv, as well as the linkages to other countries in Africa via immigrant communities and cross-border business.
"This makes South Africa a good candidate for exploring how it can serve as a link between Africa and other parts of the world, whether for exploring market opportunities or attracting investment," said Mgwili-Sibanda.
Urgent intervention needed
However, education far outranks other concerns and is the most commonly-cited challenge.
"Without a strong foundation in basic subjects it's very difficult to grow a large pool of qualified software developers that can build and grow scalable companies," Mgwili-Sibanda.
Clearly the country needs to intervene and intervene quickly.
"Initiatives for solving the education gap are already underway, however the challenge is steep. Increasing the overall quality of education including improving the skill level of teachers, and expanding access to quality education even in rural areas, remain key priorities that are already being addressed. Building business skills at the entrepreneur level is already a feature of many government-directed programs and other services that are available to entrepreneurs, particularly in Gauteng," Mgwili-Sibanda added.
He said the country must also change its attitude towards failure. "Partly as a result of circumstances - many South Africans are entrepreneurs out of necessity - South Africa has a low tolerance towards failure. A look at some of the most successful start-up environments, however, shows that failure is necessary to both innovation and the long term success of entrepreneurs. While there are signs that South African tech entrepreneurs are steadily leaning towards innovation and away from necessity, the country needs more role models for this new type of entrepreneurship. Without the interventions already mentioned and the change of attitude, the tech start-up ecosystem will grow at a very slow rate compared to South Africa's peers."
"In South Africa, we already have extraordinary tech talent," Mgwili-Sibanda continued. "But as the report makes clear, we need to broaden the depth and improve the support available to that talent if we're going to unlock the country's true entrepreneurial potential."