The Benefits of a Strong Tech Ecosystem in South Africa

South Africa is a unique place to do business. Concentration of market power in a relatively small number of companies, and high levels of inequality, underpinned by a poor education and skills system compared to global peers, has created an economy with a distinct divide between haves and have-nots. Some elements of the South African economy are wholly first-world, while others exhibit the market inefficiencies of a true emerging market.

The economy is ripe for a tech revolution, for so many reasons. Tech helps solve complex emerging market problems, such as democratising access to financial services, reducing bureaucratic processes or bringing the informal market more into the mainstream. Despite our income inequality, smartphone penetration in South Africa is around 80%, which gives a strong foundation for tech to solve these and other problems. 

Tech’s greatest asset is its ability to disrupt established business models. The knock-on effects in a South African context should include breaking down of the established market power of large companies, leading to greater competition and lower pricing for consumers. In turn, this should lead to more job creation, as new competitors enter the marketplace, and in a country with 28% unemployment, job creation is one of South Africa’s key challenges. Of course some startups will be swallowed up by the large companies, but a good number of them won’t.

Lastly, tech solutions are highly exportable. If a South African startup solves a key economic problem which can be replicated in other countries, this is likely to attract foreign investors to buy into the company, boosting foreign direct investment. Furthermore, providing the software services to other countries will lead to license fees being paid back to the South African home base. This would be a much-needed boost to exports in a country currently running at a trade deficit. 

With all these macro benefits, it is clear that a stronger tech ecosystem, producing quality tech companies and solutions, is needed in South Africa. The challenge is in execution. Various industry players need more collaboration, and both business and government need to pull in the same direction to achieve this. Furthermore, the tech skills pool needs to be multiplied, as this is fast becoming one of the country’s scarce skills. Not being economic policy experts, we are not trying to tell anyone how this should be done, but we can see what the end-game could look like, and we are excited by the prospects. 

– Ross Jenvey