Startups in SA Can Drive Growth in the Battered Economy

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The GEM SA report – titled Igniting startups for economic growth and social change – contains the facts, data and figures that highlight trends in entrepreneurship in South Africa. The results of the study reveal the fundamentals to consider when developing an informed response aimed at securing economic recovery.

Angus Bowmaker-Falconer, the co-author of the report, says that “The pandemic has intensified the country’s economic challenges. We know that earnings have been affected, that further job losses are likely, and that many small, medium and micro enterprises may not survive under these extraordinary high stakes.”

Most local companies are small or medium-sized enterprises and many will battle to stay afloat after one to three months with no or limited trade and income. “Early-stage entrepreneurial startups (new ventures less than 3,5 years old) are likely to be ravaged,” he says.

The economic and social recovery could take several years. GEM’s research during the 2008/2009 global financial crash showed a significant dip in early-stage entrepreneurial activity across the globe. Entrepreneurial ecosystems took two to three years to reach pre-2008 levels after this event. The recovery curve was driven directly by country-specific economic policy and financial support responses.


Changing gears, moving forward

Moving from startup to scale requires the right support from the government and the private sector alike. The report calls for interventions in terms of government policies and initiatives, market openness, entrepreneurship education and training, and the availability of and access to finance to foster entrepreneurship.

Bowmaker-Falconer says: “Government is an enabler and fully supports and understands the importance of entrepreneurial development for inclusive economic growth and social cohesion.”

“The Department of Small Business Development (DBSD) announced significant new measures before this crisis related to access to funding. These measures include harmonising funding applications across all developmental finance institutions and introducing a blended financing model to reduce financing costs for entrepreneurs. Overall, the focus for the government should now be on achieving policy and support initiative alignment priorities.”

The government’s economic stimulus package to help bridge COVID-19 is significant, and the impact thereof for SMME’s needs to be evaluated and made public. “Big business needs to partner with the government and play their part in opening markets and value chain participation for smaller enterprises,” Bowmaker-Falconer says.

“Financiers, together with incubators and accelerators, need to help better prepare and educate entrepreneurs on how to pitch their business ideas, how to approach funders and to navigate what kind of funding is most appropriate to their specific enterprise. What is very clear is that a cohesive and collective response is needed to ignite economic development and social cohesion potential beyond this crisis we are now in.”

An underlying key requirement for managing South Africa’s economic recovery is data. Integrated and public information is critical in understanding and planning how best to stimulate and support the entrepreneurial ecosystem going forward.

Furthermore, there is also a need for more intense entrepreneurial education to engage with the opportunities offered by the Fourth Industrial Revolution (4IR).

Bowmaker-Falconer concludes, “Entrepreneurship matters. Now, more than ever, startups, and specifically those driven by young entrepreneurs and women need to deliver the innovation required to move us forward in a highly disruptive (and disrupted) world.”

The report can be read in full here.

Edited by Luis Monzon
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