How are startups in South Africa being encouraged and supported by their government?

Small and medium-sized enterprises (SMEs) and ambitious startups create the jobs the South African economy needs the most. That’s according to president Ramaphosa, who recently announced a new $95 million government-funded scheme led by some of the most successful minds in South African business.

The SA SME Fund is designed to address, “some of the most pressing challenges to the country’s economic growth”, according to president Ramaphosa at the scheme’s launch in Johannesburg.

The vast majority of the funding within the SA SME Fund is derived from pledges from large, well-established South African corporations, with some $50m said to have been committed by influential owners.

According to the fund’s CEO, Ketso Gordhan, it will become the, “largest institutional investor in venture capital” across the country by the end of the summer. This approach to investing in the small business community is similar to a government’s use of government bonds to raise capital for national infrastructure projects.

If you’re unsure what is a bond, it’s an agreement that allows private investors to lend a government a set amount of money for an agreed timeframe. In return, they’ll receive annual interest and their entire investment back at the end of the agreed timeframe. There are two types of government bonds in South Africa; treasury bonds and treasury bills. Other countries have different names for their bonds, though.

One of the biggest reasons behind the launch of the SA SME Fund is to curb the nation’s escalating 27.7 percent unemployment rate, giving the startup and SME sector some much-needed economic support to create more jobs and encourage innovation. This fund is separate to the recent $140 million government-backed Project Development Partnership Fund (PDP), which is also geared towards encouraging start-ups to grow and employ, train and upskill South Africans nationwide.

The PDP is a joint collaboration between the Unemployment Insurance Fund (UIF) and the Public Investment Corporation (PIC). According to the minister of Labour, Mildred Oliphant, the PDP fund will generate more than 10,000 jobs among start-ups and SMEs.

Oliphant revealed that by 2030, some “90% of jobs” will be generated by South Africa’s small business community, helping to contribute hugely to South Africa’s Gross Domestic Product (GDP).

Oliphant also acknowledged the funding gap that exists in the early-stage venture capital sector for start-ups, which hinders the growth of high-potential new businesses. One of the longest-standing early-stage venture capital funds in South Africa is Edge Growth, which continues to manage more than 900 million rand of funding in over 45 deals with ambitious, exciting small businesses since 2010.

It’s these kinds of funds that have been underpinning the early-stage growth of start-ups such as Sweepsouth, Everlytic and Mobenzi that needed outside help to go to the next level.

Crowdfunding platforms are also fast emerging for start-ups in South Africa too. Uprise.Africa was the nation’s first equity-based crowdfunding platform in October 2017.

As of January 2019, this platform had already overseen 159 deals and raised almost a billion rand. At a local level, Thundafund is also helping burgeoning entrepreneurs and amateurs looking to bring business ventures and clever ideas to life in the business world.

The fact that the South African government acknowledges the importance of nurturing start-ups to grow its economy is half the battle won already for the coming decade.

[Image – Photo by Tim Johnson on Unsplash]


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