Since early July, civil unrest, widespread riots and looting, and new Covid-19 lockdown restrictions have hit the South African economy hard. Amid the arrest of former President Jacob Zuma, who handed himself over to the police on July 7 after being sentenced to 15 months in jail for failing to appear before an inquiry into corruption, unemployment had already reached a record high of 32.6%. That’s 7.2 million people without jobs.

With a legacy of apartheid — South Africa’s infamous institutionalized racial segregation that lasted from 1948 to the early 1990s — and a lack of access to education for many young people, the country has the world’s most unequal economy. However, its greatest weakness may be its greatest strength. Despite the turmoil that South Africa is enduring, its entrepreneurial ecosystem is pushing forward, thanks to its multifaceted tech founders and local SMEs being brought into the formalized economy through digitization.

Straddling both developed and developing markets, South Africa embodies a unique opportunity for entrepreneurs to accelerate innovation on the continent and beyond. Currently, South Africa is the highest-ranked startup ecosystem in Africa and has the most developed venture capital industry on the continent. The country’s business regulations promote entrepreneurship and innovation, and even the government is itself a major supporting player in the startup space. With over 80 active tech hubs and the oldest incubator on the continent, South Africa holds a vast and valuable ecosystem for entrepreneurs and investors.

The Benefits of Building in a Dual Economy

In May, during Untapped Global’s South Africa showcase, international investors came together in Cape Town, South Africa to meet local founders and learn about the startup landscape. The ecosystem’s top players shared their perspectives on the investment opportunities in South Africa and why it’s the ultimate gateway between the African continent and the rest of the world.

“Whoever is thinking of investing in South Africa or working here, it’s good for them to know that we sit in the juncture where our tech can go anywhere.”

Thandwefika Radebe, cofounder of Qwili, which makes the world’s most cost-effective smartphones said: “South Africa is very much an outlier on the African continent. We have the structural economics of a developed market, so a lot of solutions built here work in the developed world. We also have a massive developing portion of our market. So whoever is thinking of investing in South Africa or working here, it’s good for them to know that we sit in the juncture where our tech can go anywhere.”

South Africa’s mature fintech ecosystem also provides advantages to business building. “What’s really exciting is that because we have such a developed financial services industry, one of the most developed in the world, there’s an opportunity to use the local South Africa market as a testbed before scaling and expand internationally,” says Allison Collier, managing director of Endeavor South Africa, which supports and accelerates the growth of high-impact entrepreneurs in the country.

Beyond financial benefits, South Africa offers investors an opportunity to see their impact at a local level.

Zachariah George, veteran investor and managing partner at Launch Africa, left Wall Street to come to South Africa 11 years ago. He wanted to explore using venture capital as a means of creating social, economic, and environmental change across the continent and saw South Africa as the ideal location to find talent and build.

“Africa is the world’s fastest-growing economy from a consumer purchasing power perspective and a population growth standpoint, and I truly believe that using technology to leapfrog innovation and create social change is one of the early avenues in which we as consumers and producers can create value,” he shares.

Powering The Broader Economy

The startup community in South Africa isn’t the country’s only economic solution, driven by technology. Small businesses are the backbone of society. While supporting high-tech startups provides jobs and leads to innovation, financing SMEs plays a vital role for people outside of the tech sector. That’s why in addition to connecting investors to the South African startup scene, Untapped Global invests in small businesses that aren’t normally included in the formalized economy. By providing these businesses hard-to-finance equipment that can be managed remotely, we connect them to funding from investors around the world through our digital investment platform. It’s a form of venture debt that’s uniquely adapted to Africa’s rapidly digitizing, high-growth economy.

The township business ecosystem of Nyanga outside of Cape Town is a perfect example. Untapped portfolio company, Paygas, empowers local entrepreneurs while providing affordable energy to low-income households there and creating a ripple effect: partnering with the local neighborhood retailer Pick n Pay, co-located Paygas stations make it easier and more affordable for local customers to buy cooking gas, the Pick n Pay store owner sees more traffic at her business, and entrepreneurs who run fuel-dependent businesses from their homes are more productive. Untapped’s alternative investing instrument — Smart Asset Financing — helps companies like PayGas scale quickly so they can serve more customers. Access to the right kind of capital for scaling up is one of the key blockers for innovative, digital businesses emerging across Africa and other growth markets, and we are directly addressing this massive gap in the market.

“Access to the right kind of capital for scaling up is one of the key blockers for innovative, digital businesses emerging across Africa and other growth markets, and we are directly addressing this massive gap in the market.”

Regarding Untapped’s investing model, Paygas COO, Natalia Guida Giampietr, said: “ For Paygas, it’s a great model because it’s based on asset financing. We heard so much about having to be diluted, having to give away equity, and that’s not what we want. We want to keep our capital as it is, so Smart Asset Financing makes sense for us. It’s our baby. We need to develop it.”

The Light In The Dark

In a time when headlines characterize a country as the epicenter of political unrest and destruction, it’s clear that there’s always more to the story. There are entrepreneurs creating jobs and keeping society running. There are startups providing solutions where there once were none. There are local SMEs collaborating and driving business to one another.
As our friend Thandwefika Radebe says, “When developing tech in emerging markets, it is the difference between life and death in a lot of cases. That tech is the infrastructure we need to progress. So to an investor who’s wanting to invest in Africa, it’s simple. Why is tech so important and why could tech be so big on the African continent? It’s purely because there are 1.2 billion people that need that infrastructure because it doesn’t exist today.” By 2050, 1.2 billion will be over 2 billion.  Re investing how we get much needed capital to these 2 billion people using tech is an opportunity and challenge for us all”

Source:medium.com