South Africa risks falling behind competing startup ecosystems on the continent
This is unless urgent policy and regulatory reforms are implemented to address compliance constraints, limited access to capital and barriers to international investment which are preventing new businesses from scaling globally
New research by SiMODiSA — a private sector-led association that promotes entrepreneurship and advocates for startup-friendly policies — and Allan & Gill Gray Philanthropy has found startup finance remains too limited for the level of demand in the market
The report — which assesses South Africa’s ability to create a conducive environment for entrepreneurs, attract global capital and help startups reach international markets in the context of the proposed SA Startup Act — estimates fresh early-stage venture capital at R3.3bn in 2024, with most startups remaining self-funded or informally capitalised
It says despite strong private-sector activity and startup hubs such as Cape Town and Johannesburg, the country’s ecosystem growth, at 19.5%, is trailing expansion in regional peers such as Egypt, with 22%, and Kenya, with 33.5%
This year’s Global Startup Ecosystem Index ranked Cape Town as the third-highest-ranked startup ecosystem in Africa. Globally, the city ranked 114th, ahead of Johannesburg, which placed 122nd
South Africa does not currently have a dedicated, enacted “Startup Act”, but experts have said the country requires comprehensive legislation specifically tailored to support the growth of startup companies, aligning with the AU’s startup policy framework and model law adopted by the continental body in 2024
The framework is a template designed to help member states create enabling, uniform regulatory environments for entrepreneurs, which aims to foster innovation, attract venture capital and drive productive transformation across Africa
The new research forms part of the ongoing work of the SA Startup Act Movement, led by SiMODiSA, which is advocating for a policy and regulatory environment better suited to high-growth, innovation-driven startups in the country
The movement is calling for reforms that reduce friction for founders, improve access to early-stage and international capital and help local startups compete beyond the domestic market
Risk appetite for early-stage startups in South Africa has tended to be low, and funders typically shy away from putting money into ideas or getting businesses off the ground, unlike the US, which has made large and sometimes risky bets on unproven business models
The report says venture capital is important but reaches only a small minority of firms, highlighting the need for broader blended-finance mechanisms to support founders at different stages of growth
“South Africa does not lack entrepreneurial ambition. What we lack is a robust policy environment that consistently enables that ambition to scale,” SiMODiSA policy lead Shelley Lotz said
“The research makes it clear that incremental support is no longer enough. If we want startups to succeed, create jobs, attract investment and compete internationally, policy reform must become a national economic priority.”
The barriers identified in the report include regulatory complexity, administrative delays, compliance costs, limited access to early-stage finance, constraints on international capital flows, talent challenges and fragmented support mechanisms
It also notes South Africa lags significantly behind leading ecosystems in capital mobility, founder visas and targeted startup incentives
The SA Startup Act Movement is pushing for what it calls bold, co-ordinated reforms rather than small fixes. These include simplifying market access, advancing regulatory and exchange control reforms, improving co-investment and fund-of-funds mechanisms, strengthening private-sector-led venture capital mobilisation, and ensuring policy support is better aligned to the needs of scalable, high-growth businesses
The new report says a clear distinction is required between support for high-growth startups and broader entrepreneurship activation
“While both matter, scalable, tech- and innovation-enabled startups need strong policy support if they are to access global capital, enter international markets and contribute meaningfully to innovation, job creation and tax revenue,” it says
