Call for Presidency and DFIs to focus on ‘high-growth’ startups to move GDP needle

The International Monetary Fund’s (IMF) economic growth revisions of South Africa to a meagre 1,5% in 2025 and just 1,8% by the end of the decade should be, and is, cause for alarm.

This as growing tensions expand between one of South Africa’s largest trading partners, the US, which saw its new President impose, and then walk-back from, the hefty 30% tariffs inflicted on all imported goods from South Africa.

Coupled with rising internal tensions threatening the Government of National Unity, the IMF’s assessment is a call to act.

It is with this in mind that the Presidency was recently engaged to strongly emphasise the need to breed more home-grown startups and unicorns, which are businesses that surpass the $1-billion in valuation.

Go1 was the first from our shores, followed in quick step by and most recently Patrice Motsepe’s TymeBank, with many more coming up through the ranks.

It takes blood, sweat and tears to take a fledging SMME to a mighty high-growth startup, and as we see on a daily basis, South African entrepreneurs indeed have the grit to achieve it.

They however need broader, more sustainable investment and support from the government to get there.

While once South Africa was the darling in the African continent’s crown with regards to attracting Foreign Direct Investment (FDI), the country has seen that source of international capital wane from an almighty waterfall to a mere trickle of its former self.

Of course, this in large part has to be because the global funding environment has tightened dramatically, affecting startups across Africa, with Venture Capital investments for startups on the African continent declining from their 2021/22 peaks.

Nigeria, Kenya and South Africa – all major tech hubs – have each felt this plight acutely.

While interest rates and inflation are par for the problem, it often rests squarely on the shoulders of our own government who are moving too slowly and retaining outdated policies and reforms that are not fitting for an evolving country like South Africa.

And yet, the longer the lack of fit for purpose support exists, the less impactful these high-growth startups will be to create meaningful jobs, GDP contribution and stop the tax base from shrinking.

This was among the important discussions that took place at a recent engagement hosted by Endeavour South Africa, The SA Startup Act Movement and the Michael & Susan Dell Foundation.

Together they facilitated a conversation between the Presidency, Youth Employment Service, IDC, DTIC and some of the country’s top startups around the challenges they have faced in scaling up their tech businesses both locally and globally.

Cheslyn Jacobs (TymeBank), Katlego Maphai (YOCO) and Velani Mboweni (Lula) reiterated the need for a mindset shift from our DFI’s to better support high growth startups and SMEs, especially when they are and could contribute so much more financially into the economy, while FDI takes a different direction into other emerging markets.

Consider modern day startup pioneers such as Google (1998) and Airbnb (2008) and in South Africa’s case examples such as Clickatell (2000), Go1 (2015), TymeBank (2015) and SweepSouth (2014), these are capital-intensive businesses that are not necessarily small by valuation, but have raised hundreds of millions of rands from local and international investors.

Today South Africa has at least 490 of these high growth startups that can generate up to R100 million in the first five years and each employ at least 389 people, contributing 190 610 jobs to the workforce, with more than 80% being black South African youth.   

Indeed, while this is cause for applause, the myriad challenges that persist in preventing these and other high-growth startups from scaling are challenges that can be eased by government.

Our regulatory framework around exchange controls make it challenging to attract FDI, stringent visa laws make it difficult to hire top talent, and the difficulty to attract local investment from some DFIs who often take too long to vet their applications or, in some cases decline digital business because of the limited experience in evaluating these unique and new business models.

Supported by the UK-South Africa Tech Hub, its aim is to enable highly scalable entrepreneurs to thrive within operating environments that make doing business locally and globally, easier.

With a goal of 1,8% growth being estimated by government, it is unlikely we will see South Africa reach this milestone unless we focus on unlocking the full potential of high impact entrepreneurs, through establishing a policy framework that reduces barriers to entry, incentivises risk-taking, and ensures that the private sector plays a meaningful role in funding and scaling early-stage businesses.

As we see the increased focus on improved transformative policies in the country i.e. Transformation Fund, Employment Equity, BBBEE, it’s time to put our money where our mouth is.

This starts both at the grassroots and top level.

In the 2025 National Budget Speech, the Finance Minister pledged a 51% reduction in the cost of a 1,5 gigabyte of data.

This small but mighty effort will make significant strides as fresh-faced startups, formal, and informal SMMEs gain online tools and skills that were previously unattainable behind the Digital Divide.

The R3,7-billion allocation to the National Skills Fund will also go a long way to contribute to sector-based skills, research and innovation among youth. 

While most will utter joy at the 11th hour scrapping of the contentious VAT hikes to 17% within two years, which would have made commercial life harder for businesses across supply chains, this particular policy shift is not the answer.

Our policies need to be robust enough to cultivate growth, which is why the SA Startup Act is relentlessly lobbying government to join at least 13 other African countries to implement a startup legislation that can grow startups and SMEs who need investment.

The call to action to the Presidency and DFI’s in the engagement was a recommendation to include the reform needs of South African high-growth startups in national reform agenda’s such as Operation Vulindlela. 

Without the speedy implementation of innovative approaches of solving challenges faced by high-growth startups such as these, our local startups and SMEs may remain stagnant without being afforded the opportunity to grow to compete globally, which will limit the country’s chances towards achieving higher growth rates and eventually ability to create more jobs, non-VAT tax and boost GDP.

Otherwise, it’s just another own goal.

Phumzile Chifunyise is Managing Director of SiMODiSA, a secretariat of the Startup Act Movement. 

BUSINESS REPORT