A website on starting and growing a business in South Africa
Category: Small Business and Entrepreneurship
Small business holds the promise of creating jobs and entrepreneurs create the opportunities that employ more people. This promise will be a reality when significant contextual changes and policy shifts occur.
TaxTim has launched a company tax return tool, that offers small businesses a new option to handle all their tax affairs. Anyone, running a business – especially a small business, where the owner multitasks – knows that regulatory compliance is a major issue. This new offering offers a way to complete tax returns, and in so doing makes it just that much easier to focus on running the business. Remember, what Michael E. Geber said:
“A true business opportunity is the one that an entrepreneur invents to grow him or herself. Not to work in, but to work on.”
The Importance of Digital Finance for Financial Inclusion in South Africa The Banking Association of South Africa defines Financial Inclusion as a development that improves the “range, quality and availability of financial services and products focusing on the unserved, under-served and financially excluded. Principles of financial inclusion include: access, affordability, appropriateness, usage, quality, consumer financial education, innovation and diversification, and simplicity.”
According to Bank SETA, 53% of the country’s adult population is unbanked. The reasons vary, including the fear of exploitation, an inability to access physical bank buildings, strict FICA requirements and the steep fees. But factors like the lack of trust in the traditional banking sector, concerns about safety and security, time, and convenience all contribute as well.
Digital finance provides solutions South Africa has one of the highest mobile penetration rates in the world, with 87% of the population owning a cell phone. According to a report by The Guardian, “mobile phones carry huge economic potential in undeveloped parts of Africa.” The same article notes that a study conducted by the London Business School in 2005 found that the GDP rises by 0.5% for every additional 10 mobile phones per 100 people in a developing country. There is thus great potential for local and global economies to grow if enterprises are willing to tap into unbanked and under-banked markets and make digital financial solutions available to all. Though the lower income segment may be financially challenged, they are comfortable enough with technology, and many mobile banking solutions companies are indeed using technology to reach this market. Traditional “bricks and mortar” establishments are often hard to come by, especially for the rural-based populace. Many of these digital finance companies provide an easy and accessible way to bank, where customers have no need for travel, all the while cutting through most of the red tape.
We’ll take a look at how companies improve the range, costs, access and availability of financial products in order to win the unbanked and under-banked sectors, making financial inclusion possible for the unserved, under-served and the financially excluded.
Range According to the Bill & Melinda Gates Foundation, “The global revolution in mobile communications, along with rapid advances in digital payment systems, is creating opportunities to connect poor households to affordable and reliable financial tools through mobile phones, kiosks, and other digital interfaces.” Service providers can now reach this segment through mobile communications, and the poor in turn can now have access to these service providers. Today, the unbanked can make use of services that were previously out of range or not accessible to them. Companies in Ghana, for example, make access to life insurance cover possible for people in rural areas that are not familiar with or educated enough to know about the importance of financial products, like life and funeral cover. The process is simple: whenever an individual buys and loads airtime, they automatically get insured with limited life cover.
In Uganda we hear about local businessmen (fishermen, farmers) using their mobile phones to pay bills. These individuals in these communities are in actual fact creating a micro-economy by banking money on their phones and transacting with each other through these means. The range of connection, access and opportunity expands exponentially with digital finance.
Time and costs Mobile transactions save time and are much more convenient. People in rural areas no longer have to walk kilometres to get to a bank. There’s also no queuing in long lines or dozens of forms to fill in – and in many cases the poor are uneducated and unable to even complete these forms. Transactions via mobile are also much cheaper. Costs that would have been incurred should cash have been handled by banks are now cut out. We also find that exceptional products and new collaboration of services come to market through digital finance for the very purpose of saving time and costs whilst still providing a much-needed service.
Access and availability Glen Jordan from financial services firm IMB believes it’s important to uplift South Africans with a stake in this country’s economic future. “It’s time to provide state-of-the-art financial solutions tailored to a market struggling with a financial inclusion. That’s one challenge we at IMB tackle with energy.”
Glen and his team believe the infrastructure exists, a sentiment echoed by the World Bank. According to a World Bank report, “South Africa’s highly-developed financial infrastructure, as well as mobile technology, provide opportunities for financial inclusion.” With South Africa boasting one of the best telecommunications sectors in Africa, and with the financial infrastructure as sophisticated as it is, there are ample opportunities for massive growth – making financial inclusion for the masses possible. By making digital finance available to a greater extent, access and availability are expanded to these markets. Products of service providers are now accessible to the poor, connecting people to one another on a local and global level.
ZApreneur spoke to Jenn Hattingh from uAfrica about their ecommerce offering. This is the start of a series of interviews on eCommerce in South Africa. What spark our interest was an initiative to assist new businesses to set up online stores, and a promise of support from uAfrica and bidorbuy. Key Takeaway: If you interested in setting up an online store in South Africa, uAfrica is running a competition. What I like about the competition is that every entrant gets a good value set of freebies including assistance in setting up a store, promotional credit on bidorbuy, and ability to test out their multichannel app for six months, free. And that is what the losers in the competition get! View the competition details and enter now!
1. Hi. Please tell us a little about uAfrica.
uAfrica.com is a reseller for the Shopify eCommerce platform in Africa. We have localised Shopify for the South African online business market by bringing South African payment gateways and shipping functionality into the ring to help make Shopify even more accessible to local merchants.
2.Who runs the place? How long have you been around?
Andy Higgins is our MD, he founded bidorbuy back in 1999 and after leaving bidorbuy started uAfrica.com.
3. Awesome! Why would a company use a service like uAfrica rather than say run a store yourself, using for example WooCommerce?
A shopping platform is a matter of personal preference but, being cloud based, we think that Shopify is a great solution for many South African merchants simply because they don’t need to worry about managing things like servers, backups or upgrades. They can focus on their core business leaving the technical aspects up to the experts. uAfrica.com has > also built tools to localise Shopify in South Africa and we have negotiated special terms that allow us to charge our clients in ZAR for their monthly Shopify subscription fee instead of USD, so the monthly cost ends up saving merchants a bit of money at the end of the day.
4. How does uAfrica work with Shopify?
We’re a strategic partner of Shopify and help spread the word around Africa about the benefits of having a Shopify store. Besides other marketing initiates we also run monthly workshop sessions, called MeetUps, to help merchants set up and manage their stores.
5. How does uAfrica work with Bidorbuy?
Andy, our MD, founded bidorbuy back in 1999 and the relationship has remained a close one ever since. We have built an integration into bidorbuy.co.za that makes it easy for merchants to sell across multiple channels.
6. I see you have a Multichannel app. What does it do?
uAfrica’s Multichannel service allows an online merchant to sell on multiple channels while only needing to manage inventory and orders on one ‘source’. For example, when a merchant places an order on their bidorbuy channel, the inventory is updated on the Shopify source store, so you never > sell anything you don’t have. At the moment we integrate into Shopify and bidorbuy but we are looking to broaden the offering as Multichannel grows. The app also offers uAfrica Shipping which allows merchants to obtain > quotes from multiple couriers and then generate waybills, handle courier collection requests and track shipments with status notification updates to buyers.
7. As someone providing online stores, what reflections do you have of > the online commerce in South Africa?
South Africa is still behind the rest of the developed world with regards to adoption of eCommerce, however the sector is growing at around 30% per annum, albeit off a relatively low base. This compares to flat or low single digit growth of traditional retail so it is an exciting sector to be involved in. With the advancements in technology such as hand held devices and better internet provision, the infrastructure available to shop online with ease is now available to South Africans and online businesses are starting to make the move online to reap the benefits.
8. What advice would you offer to a business owner wanting to start an online store?
The best advice we can offer is to just jump in! The best way to learn about how a platform ticks is to give it a try. Shopify offers a free 14 day trial where you really get to test the platform out and what it can offer. There are no limitations on the free trial either, so you can > really get into the gritty details and additional functionality that is available. A lot of new online merchants are nervous to launch because the site isn’t ‘perfect’, but if they’re not live, nobody is looking at their product offering and they’re wasting time and money. Think progress, not perfection. uAfrica is running a New Business Competition for the duration of 2016 to help merchants get set up selling online. View the competition details and enter now! Note: ZApreneur Media does NOT earn a referral commission from this article.
The Minister of Small Business, Lindiwe Zulu is championing the introduction of set-asides for small business in government procurement by September this year.The proposal is to set aside 30% of all government procurement for small enterprises. However, it is worth remembering that Cabinet on the 7 November 2007 announced a decision to do exactly that – create set asides for small businesses. How than do we explain the inaction on this decision for eight years? The answer to this question cannot be answered by simply arguing that government is inefficient. Rather its the way economic policy is developed in South Africa. Three factors working together in a complex power play shed light on the delay. First, after the Cabinet decision, the National Treasury blocked attempts to introduce set asides. The Treasury’s argument seemed to be based on two different arguments. On the one hand, they argued that the process of set asides was unconstitutional in that they preferred one supplier over another. On the other hand, they argued that the cost of services and products being supplied by the private sector to government would increase. Second, is the broader tussle over economic policy. This policy process firmly pitted the Department of Trade and Industry against National Treasury during President Thabo Mbeki‘s administration. The tussle continued into the President Jacob Zuma administration, with the Department of Trade and Industry, Economic Development Department and now the Department of Small Business all arguing for the introduction of set asides. Zuma reaffirmed governments commitment to the policy of introducing set asides in the 2015 State of the Nation, and that potentially settles the issue. Third, small business advocacy organisations in South Africa have a collective action problem. To impact on economic policy requires consistent lobbying and advocacy over a period of time and building support across wider groups in society. In the case of set asides being placed back on the agenda this collective action problem was solved not by better coordination of small business interest groups, but through activism within the government. Eight years later, an agreement has been reached within government for the introduction of set asides. Treasury officials are apparently more comfortable with set asides, now that work on an online procurement system will make monitoring of contracts simpler and more transparent. Moreover, having a department focussed on small business — for which the introduction of set asides is one of its main priorities — influences internal discussions in Cabinet, as there is now a consistent champion for the idea. Whilst, this agreement might be described as fragile, it is an important one. The agreement however took eight years to reach a point where it could be implemented and therein lies the core problem. The 2007 plan was neither ideologically polarising nor posed a high risk of increased corruption. The green light should have been given to pilot the idea in some government departments, which would mean eight years down the line we would know whether set asides were a good policy or not, and not, as we are now, still waiting for the relevant regulations to be promulgated. Instead we have lost years of experience in understanding how state procurement can support smaller players in the economy. It is an incredibly large lost opportunity. But in other areas action has been speedy. Notably, the Jobs Fund and Youth Employment Subsidy programmes run by Treasury have been fast tracked, suggesting that there are ways and means to ensure policy is implemented. Similarly, interventions in the infrastructure sector through the Presidential Infrastructure Investment Commission seem to suggest a concerted focus on resolving differences. In other words, government might be better at solving macro-type problems, and not micro-type problems. However, it is in solving the micro problems — like selling services or products to a school or clinic, which set asides would support — that helps small businesses gain a foothold in the economy. The eight year delay in implementing a Cabinet decision is cause for concern. If bureaucratic disagreements can stop Cabinet level decisions from being implemented then citizens have only a slim chance of impacting on government‘s agenda. This surely is not the democracy we hope to live in. This article first appeared in the Sunday Times: Business Times (14 June 2015)
Automattic, an American company that runs WordPress.com bought South African company called WooThemes for a reported $30 million. Some statistics speak about the scale of business that WooThemes have built in eight years. Its ecommerce solution, called WooCommerce is estimated to power 24% of all ecommerce websites. This free plugin has been downloaded over 7,5 million times. Automattic the buyer of the company is amongst the tech elites referred to as “unicorns” – which are companies with a valuation of over 1 billion dollars. The transaction is thus huge in possible impact, and all the more interesting as WordPress is open source software, and what it may mean for economic policy.
WordPress in South Africa
The deal shines a spotlight on WordPress in South Africa. The purchase of WooThemes by Automattic is a confirmation that South African companies are serious players in the WordPress space. The next most prominent South African WordPress company is called Obox are attempting to create a platform for non-technical users to easily make changes to their websites, which could be a game changer. Smaller plugin companies and theme developers, such as Tiny Giant Studios, Site Origin and Promola, offer niche solutions and compete on the international stage. In the hosting space, smaller companies offer WordPress specific hosting, outcompetes on price, features and services many of the larger hosting providers. There are probably a couple hundred companies – mostly smaller ones – in South Africa selling services and products related to WordPress.
Open Source and Jobs
In our search to create more small businesses in South Africa, it is worth exploring what it would take to go from say 100 companies selling WordPress services or products to say 1 000 businesses. Assuming that each person would employ about 2 people, and that 50% of businesses succeed it could yield 500 new companies and around 1 000 jobs. All without the need for government to run expensive incentive programmes. To be clear, the government would need to play a role in supporting rapid skills acquisition and fostering a venture capital sector for smaller investors. To be successful, the market will require some support. It may also sound as wishful thinking, given the skills challenges that we face in South Africa. Work opportunities in WordPress ecosystem are however not just about coding, with a range of employment opportunities being available. Skills needed in this ecosystem include skills of building communities, graphic design, warehousing and a range of other opportunities. Simply stated, expanding the South African ecosystem for technologies like WordPress could provide a way to stimulate jobs for people, with a short training period. But, an ecosystem like WordPress requires world class coders. An interesting feature of both Automattic and WooThemes is that they have what are called distributed teams. Basically, employees in these companies work from wherever they want, and have no need to be physically present at an office. World class coders could thus be sourced from anywhere in the world. Moreover, South African already has a small number of world class coders, and with changes in our education system, a wide pool of coders could be developed over a 10 year period. The foundation for expanding business ownership in South Africa are already there as companies like Automattic exist in other spaces, and allow for integrations with their core offering. South Africa needs to quickly understand these opportunities, for in them lie potential areas for significant growth in the number of new firms being established, and for a radical revamp of education a nation of coders. It holds the promise of using the Internet to equalise our society, and with an expanded unemployment rate approaching 40% even the most doubtful should consider the prospects for service based jobs and businesses based on the Internet.
Now, let us get a little more excited. If we widen the lens to include other open source companies and those allowing integrations to the core offering. Think about large Internet companies like Salesforce or Slack, and the many smaller ones. Our estimates would become much larger for new businesses, established businesses and employment. These businesses and jobs will be created in the services industry, but in a sector that is growing and international. In some respects, it resemble outsourced call centres. But, with one crucial difference: the cost of owning a business are much lower. The deal reached between Automattic and WooThemes is an incredible deal, that places South Africa on the map. WooThemes is obviously an exceptional success story, but there are opportunities for smaller players. The signal however is not merely that WordPress is changing, but that as the Internet takes hold, it will not merely destroy jobs but will create opportunities to create new types of businesses. If you an entrepreneur, what are you still doing reading this? ( WPossible.com is another Zapreneur site, that will be officially launching soon. Please signup to the newsletter.)
“Just start” is a mantra by all startup gurus. This post uses the example of the Tuts + network to show how working with what you have is crucial to starting quickly.
Of all the entrepreneurial mantras out there, probably the most famous is possibly “Just Start”. It sounds reasonable and even motivational mantra, and gels with our ideas of entrepreneurs as creatures who throw caution to the wind. Yet, when one looks carefully at successful entrepreneurs they are neither risk takers, nor running around aimlessly doing stuff. The risks are smaller, and there is a process of learning. I have been a customer on Envato for four years. Envato runs a network of sites selling digital files and a set of educational sites, and a couple of other things. It is the biggest marketplace for WordPress themes in the world. It is however a very successful business. From a customer perspective I have some issues with the business, but still regularly purchase from them. In 2010, the CEO/ Founder of Envato gave a five minute talk that helps us understand the “Just Start” philosophy using the Tuts + network as an example.
Three features of the presentation are worth noting:
Start small – In the presentation notice how they started with literally a basic static website, and overtime invested in the development of the
Start quickly – Everything does not need to be perfect, but having a product or service available provides a
Make changes – These days the concept of a pivot is popular in the startup community. In building the Tuts Plus network the changes the important feature is that they were making changes as they better understood there customers.
Cash flow – In this presentation, Collis Ta’eed notes that it took them 18 months to become profitable. Managing costs and keeping costs down are crucial.
Means in Hand
The story told in the video resonates with one of the principles of effectuation. The principle is called “Bird-In-Hand”, which focusses on the means that are available to entrepreneurs. It is drawn from the idiom “a bird in hand, is worth two in the bush”. The presentation shows this principle. Ta’eed has at his disposal the following:
Photoshop skills: Knowing how to use Photoshop is a fairly common skill
HTML skills: Again, a resource available to most people, and fairly easy to learn
3 Tutorials: Again, developing a couple of tutorials is not that difficult.
The important lesson is that using these available resources, they were able to get started really quickly and test an idea – with available means.
Amongst the many myths of entrepreneurship, the most jarring is the existential question:
Am I really an entrepreneur?
This is the self-doubt that almost every entrepreneur faces at some point. The reasons for this self-doubt are many, and include the hero status that some entrepreneurs have. In the face of outstanding success by these entrepreneurs we wonder whether we have the insight, determination, product and skills to build what we dream. The narrative is intended to empower, but may have the opposite result. The video below dispels several of the myths associated with entrepreneurship, including understand who and what entrepreneurs are. The video draws on the excellent work of Saras Sarasvathy, who has introduced the concept of “effectuation” to the entrepreneurial world. The video starts with super entrepreneurs, and helps us to learn lessons. Most importantly, through understanding the myths, it helps us deal with self-doubt and get started.
Myths Of Entrepreneurship
The important learning for me from this video are:
Entrepreneurship is Not Extraordinary
At one point for all of us, riding a bike was extraordinary. After a few stumbles and bruised knees we learned to ride a bike. In doing that riding a bike became both enjoyable and ordinary. In the video the same point is argued, entrepreneurship should not be viewed as extraordinary, but that each of us have this capacity.
Start with available means
I have seen business plans that need such huge investment that no bank or investor are likely to finance it. The ideas underlying the business plan are often sound and sometimes inspiring. The problem is that it is just a plan, the company has literally no customers, and they have not taken the time to test their idea. Starting at a different point would help these entrepreneurs. They should instead start with what their available means. Tapping into networks, using money to build a prototype or even getting commitments from potential clients are all within our available means. It may even help getting finance for your business, but more importantly it may allow you to bootstrap your business or in the worst case realise that your idea is not that good.
Personally I have many, many ideas. This creates a huge problem of focus for me, and everyone tells me that I need to focus on one idea. Effectuation looks at ideas and actions differently. It encourages having various possible goals and to develop solutions to these specific problems. Importantly, it asks you to reassemble your available means in creative ways to reach a goal. A word of warning though, managing multiple ideas, goals, action plans and customer service is extremely difficult, and not what I am suggesting.
The learning point is rather not to fixate on one outcome, but rather be open to various endpoints.
This is a lesson we learned at Zapreneur. I started this looking to develop an online publication focussed on economic inclusion and small businesses. My intention was to run this as a paid subscription model. In the process we learned that South African entrepreneurs have a very different set of problems, and that we could develop small and useful online applications that could solve real problems. Proposal Desk is our first attempt.
Dreaming of making a million bucks in a year or even a month? Dreaming of buying an island? Stop! Rather than focus on the upside, focus on the downside potential. Knowing how much you can afford to lose is vitally important. It provides a constraint to your ideas, and as a result brings discipline, effectiveness and reduces financial stress. In fact, go so far as to have a very specific number in mind. You need to know for instance that, I am willing to lose R 10 000-00, and willing to invest six months of time into starting this business. Knowing that allows you to plan your expenses, pay the kids school fees, design a realistic marketing plan and know your breakeven point. That is an incredibly empowering position to find yourself in.
Create The Future, Do Not Predict It
The exciting part of entrepreneurship is that we have the opportunity to create products and services that make the world a better place. Through using principles like affordable loss and using available means, creating the future becomes more action orientated . See you at the start line ! (Over the next few weeks, I hope to discuss effectuation in greater detail and with examples. )
“Global Competitiveness Index South Africa” is a common heading on slides discussing economic policy in South Africa.The data from the Global Competitive Index by the World Economic Forum plays a very important role in South Africa because it is seemingly reputable and rigorous. Motivations for several policy initiatives, in fact, are directly substantiated by our rankings in the this international league table. The data is however derived from both national surveys (such as those conducted by Stats SA), but also includes a set of questions posed to business leaders. The questions related to perception of business leaders in South Africa (a handful actually) leaves me wondering why my reality is so different from theirs. I found the responses to issues related small business , extremely worrying, as the respondents to the survey share a world very different from that of a startup like Zapreneur. Three questions stood out for me:
Intensity of local competition: The question asked was “In your country, how intense is competition in the local markets? [1 = not intense at all; 7 = extremely intense] “ . ?The survey placed us at number 45 out of 148 countries, with a score of 5,26.
Extent of market dominance: ?The question asked was “In your country, how would you characterize corporate activity? [1 = dominated by a few business groups; 7 = spread among many firms] “. ?The survey rated South Africa 37 out of 148 countries, with a score of 4.28.
Effectiveness of anti-monopoly policy: The question asked was In your country, to what extent does anti-monopoly policy promote competition? [1 = does not promote competition; 7 = effectively promotes competition]. Wait for it Zapreneur readers, we are ranked number 8 in the world, with a score of 5.32.
Small Business Realities
Over the last two years and nine months since Zapreneur started, I have discussed issues with many small businesses in South Africa. This interaction tells me that there is a wide gap between the business leaders asked to respond to the World Economic Forum survey on the one hand, and the entrepreneurs starting and running businesses in South Africa. The perception I am left with is of an economy that is highly concentrated, where big players have dominance of value chains and where good initiatives on competition policy have yet to yield results in the day-to-day realities of starting and running a small business in South Africa. I would thus of answered the questions asked in a very different way, and from a very different perspective. This worries me a great deal, as part of what Zapreneur does is to advocate for easier starting of businesses in South Africa, but also for structural change to support small businesses and the entrepreneurs that run them to run viable opportunity based businesses. Yet, it seems before we can do that, we need a set of common understandings on what the nature of the South African economy in terms of its competitive landscape is. At the core of good public policy making on small business is understanding the nature of the problem we have, and if our business leaders think that we have an economy supportive of startups we are clearly have differences in understanding of the our economy. It raises the question ” Whose reality counts”? (Perhaps, a useful way to start the discussion would be to better describe my understanding of the challenges we face. I have made a start but more is still needed to develop evidence based policy on small business in South Africa.)
Start-up companies and initiatives with no track record or proven capacity to implement.
(To access the presentation, please see the “Latest News” section of the Jobs Fund The New Age reports that start-up companies need to partner with empowered companies with proven track records. The intent behind this is to ensure that the Jobs Fund targets projects that have the strongest case for success, in terms of addressing unemployment. The logic behind this decision however is questionable for six related reasons.
South Africa Jobs Fund meeting its objectives?
First, adopting this approach is unlikely to meet the Jobs Funds objectives. The Jobs Fund states its goals as follows:
The ultimate goal of the Jobs Fund is to identify and learn from effective interventions and programmes that will contribute to accelerated job creation and a better functioning labour market.
The specific goal of the Jobs Fund is to provide a mechanism that can identify and fund creative solutions to overcome identified barriers to job creation and active labour markets.
In the process, the Jobs Fund aims to create a minimum of 150 000 sustainable jobs in South Africa over a five-year period. A “sustainable” job in the context means a new, full-time equivalent job that is self-sustaining beyond the lifetime of the initial grant.
The goals are laudable, however it will not offer answers to the question – What interventions are potentially scalable to encourage start-up activity? This is potentially the biggest unanswered questions in our attempts to bring about more equal ownership of the economy. The Jobs Fund has however structured itself in a way that it will not learn about the experiences of start-ups in South Africa. Ironically, this approach limits the role of potential jobs arising from South African start-ups.
Small business creates jobs
Second, small business must play a role in job creation. However, the revised criteria not only places onerous conditions on start-ups, but also signals that it will focus on high growth sectors and labour absorbing sectors. The focus aims to align spending with opportunities that have strong focus on growth, and could create jobs. However, successful small businesses will emerge not only in current growth sectors, but in sectors that are embryonic. Reading between the lines it is thus conceivable that the small business are left out from a potential funding source as by their very nature they are often in sectors that are outside government definitions of “high growth” sectors . To be fair, the current reports on the Enterprise Development window shows that funds are directed at intermediary organisations, some providing financial and non-financial support to small business. The point being made is that the Jobs Fund should work more closely and more directly with small business especially in terms of government supported venture capital.
Unfair to startups
Third, the terms of entering into partnerships are unfair to startup owners. Essentially, what The Jobs Fund is suggesting that start-ups enter into agreements with larger companies, with larger empowered companies holding the trump cards. Arguably, partnerships could be based on a non-financial contribution. Even in this case, it is an onerous process to undergo, to access potential government funding. To be clear, start-ups need all the support they can get, but potential founders are less likely to emerge when they are required to (a) find matching funding and (b) possibly give up equity to a larger partner.
Support opportunity Based Entrepreneurship
Fourth, opportunity based entrepreneurship creates jobs. The Global Entrepreneurship Monitor (GEMS) shows that across the globe focusing on opportunity based entrepreneurs yields good outcomes on the creation of jobs. Testing what makes opportunity based entrepreneurship works is thus crucial to the goal of creating long-term sustainable employment.
Fifth, the Jobs Fund does not understand risk in a way that is supportive to the goal of job creation. The Jobs Fund adopts an approach that is focused on the These criticism of The Jobs Fund should however be viewed in relation to a startling admission:
The Jobs Fund is not intended to tackle the long-term, structural causes of low growth and unemployment. (emphasis in original).
The approach advanced by the Jobs Fund is thus inherently contradictory. On the one hand, it seeks to create sustainable jobs. On the other hand, it aims to do that without tackling the underlying causes. It fails to understand the risk of long term structural unemployment requires tackling the underlying reasons for structural unemployment. This can be done through supporting start-up activity, but also supporting interventions that focus on making access to value chains more accessible.
Crowding out venture capital
Sixth, start ups will compete with the Jobs Fund for limited funding. Xolani Ndungane is quoted in Engineering News as follows:
Our target is higher, not just in terms of jobs, but also in terms of the amount of money we bring in from the private sector to co-fund the initiatives,”
The stated aim is to raise an additional R 10 billion from the private sector. There would be no problem with raising additional funding if the criteria supported new entrants into the economy, especially black small business. However, as it stands the raising of funds may impact on the already limited venture capital funding available for start-up funding. Should companies be incentivised to support Jobs Fund, or directly support opportunity based start-up businesses?
A Lost Opportunity?
Sadly, the positioning of The Jobs Fund does not change the opportunity basket available for start-ups and small business. We could receive a better impact for the initial R 9 billion invested by government in the Jobs Fund, through supporting start-up activity. The first investments in start-ups might not yield much needed jobs immediately, but could over the longer term begin to transform the underlying reasons for economic equality. Ultimately, the Minister of Finance is not going to be able to report to Cabinet about lessons learned about starting up in the South African economy, and that means we have not taken steps to utilise public funds to understand the practical steps to structural change in the economy. In short, the current approach to funding projects by The Jobs Fund fails to support a key vehicle of economic democracy and employment creation – start-ups.
Presentation on government’s role in small business and entrepreneurship.
How do we create viable small businesses in South Africa? The presentation below provides initial thinking to answer this question, and was presented at a workshop organised by the Economic Development Department (EDD).