Although South Africa’s startup ecosystem is improving, it still lags behind its regional and global counterparts in terms of capital formation, regulatory effectiveness, and access to foreign markets.
This is supported by a recent study published by SiMODiSA in collaboration with Allan & Gill Gray Philanthropy South Africa. The study evaluates South Africa’s capacity to foster an environment that is favorable to entrepreneurs, draw in foreign investment, and assist startups in expanding into foreign markets within the framework of the proposed SA Startup Act.
SiMODiSA is promoting legislation and regulations that are more appropriate for innovative, high-growth startups. The movement is advocating for changes that would assist South African businesses compete outside of their home market, lessen obstacles for founders, and increase access to early-stage and foreign funding.
While South Africa’s startup ecosystem is maturing, structural barriers continue to limit the growth of a scalable, globally competitive pipeline of high-growth ventures. Existing startups continue to show strong activity and resilience, but persistent gaps remain in areas such as access to finance, support systems and entrepreneurial participation.
South Africa sits in a mid-tier of global startup ecosystems. Although it remains a leader in some respects, supported by strong private-sector activity and startup hubs such as Cape Town and Johannesburg, it risks being outpaced by more agile emerging ecosystems. The report notes that South Africa’s ecosystem growth, at 19.5 per cent, is already trailing regional peers such as Egypt (22%) and Kenya (33.5%), signalling that faster-moving emerging markets are beginning to close the gap.
In this context, South Africa’s challenge is not a lack of potential, but the pace and effectiveness of policy execution needed to convert that potential into global competitiveness.
In this situation, South Africa’s problem is not a lack of potential but rather the speed and efficiency with which policies must be implemented to turn that potential into competitiveness on a worldwide scale.
Additionally, startup funding is still insufficient given the market’s level of demand. The majority of firms are still self-funded or informally capitalized, according to the research, which projects new early-stage venture funding reaching ZAR3.3 billion (US$204 million) in 2024. This highlights a fundamental problem: venture capital is crucial, but it only reaches a tiny percentage of businesses. To support founders at various stages of growth, more comprehensive blended-finance solutions are required.
“South Africa does not lack entrepreneurial ambition. What we lack is a robust policy environment that consistently enables that ambition to scale,” says Shelley Lotz, policy lead at SiMODiSA. “The research makes it clear that incremental support is no longer enough. If we want startups to succeed, create jobs, attract investment and compete internationally, policy reform must become a national economic priority.”
Regulatory complexity, administrative delays, compliance costs, restricted access to early-stage financing, limitations on international capital flows, talent issues, and disjointed support structures are some of the obstacles mentioned in the research. It also points out that when it comes to targeted startup incentives, founder visas, and capital mobility, South Africa falls well short of top ecosystems.
The results highlight the need to grow South Africa’s entrepreneurial network while bolstering the larger operating environment where startups can thrive, rather than only helping current firms. This entails making sure that governmental actions are coordinated to assist scalable, high-growth enterprises, enhancing enabling infrastructure, and minimizing fragmentation across support systems.
The SA Startup Act Movement is advocating for strong, coordinated reforms rather than band-aid solutions in response to these results. These include streamlining market access, promoting regulatory and exchange control reforms, enhancing fund-of-funds and co-investment mechanisms, bolstering venture capital mobilization led by the private sector, and making sure policy support is more in line with the requirements of scalable, high-growth companies.
Support for high-growth businesses and more general entrepreneurial activity must be distinguished clearly. Both are important, but in order for scalable, tech-enabled companies to access global financing, penetrate foreign markets, and make a significant contribution to innovation, job creation, and tax income, they require robust policy assistance.
