BrandArena: Growing the South African economy: The case for investing in innovation

Wednesday 9 March 2022

Growing the South African economy: The case for investing in innovation

South Africa needs to fast track economic growth to reduce poverty and inequality. This was a crucial message in the 2022 Budget Speech, with Finance Minister Enoch Godongwana saying that only through sustained economic growth can South Africa create enough jobs to reduce poverty and inequality; enabling us to reach our goal of a better life for all.

To create this economic growth, South Africa will need to embrace innovation, says Dr Nee-Joo Teh, Project Director of KTN Global Alliance Africa. KTN Global Alliance Africa is supporting economic growth in South Africa by creating interventions that are designed to strengthen and scale local innovation and business environments in South Africa. These interventions aim to build stronger UK-African and Pan-African knowledge and innovation partnerships that lead to mutual socio-economic benefits for African partner countries and the UK.

Bridging barriers to innovation

According to the latest Business Innovation Survey, almost 70% of South African businesses are innovation-active.

However, the same survey found that the most significant barrier to innovation centres around funding. Almost a third of surveyed companies reported a lack of funds within the business or business group as an obstacle to innovation. Around a quarter cited the high cost of innovation, and just over 20% said they struggled to access government grants.

Yet investment is happening on the continent. In 2021, there was $4.9 billion in estimated funding in Africa, which more than doubled in two years. But very often, small businesses are excluded from this process, with investors preferring to invest in more mature businesses. This makes accessing funding challenging for small businesses – the very companies that are the lifeblood of the economy. SMEs are the largest proportion of South Africa’s business landscape and employ between 50% and 60% of the country’s workforce.

“Lack of access to finance can be a major barrier to innovation. Often this has less to do with lack of funding, and more to do with visibility and understanding between sources of funding and innovators seeking that funding,” says Nee-Joo.

Collaborating for investment

One of the ways KTN Global Alliance Africa is supporting innovation is through strengthening the investment pipeline in South Africa.

The funding space can be daunting for small businesses, which need documentation and business plans established to prove their long-term success to investors. In addition, innovators will need to navigate the different types of investment - some investors may require a financial return or equity or may be willing to offer only a small loan. Investors have different risk profiles and products to offer - from venture capital through to research grants and business loans. Navigating and preparing applications for different investor types requires thought and preparation.

KTN Global Alliance Africa’s work includes improving the mutual understanding of needs and opportunities between investor and innovator communities through a combination of community and capacity building, upskilling innovation support and match-making activities.

“An ideal way to address this is through the development of networking opportunities. When investors and innovators come together, we can bridge gaps in the understanding and expectation differences between funders and potential beneficiaries,” explains Nee-Joo.

But it’s not all on the shoulders of entrepreneurs: Investors also need to prioritise investing in innovation if South Africa is going to experience significant growth.

South Africa is one the world’s fastest-growing regions in terms of foreign investment, and this needs to be scaled up to unlock more economic opportunities.

One of the best ways to support the innovation ecosystem is through early-stage investment, which provides the boost businesses need to attract growth and expansion capital. Investors should also consider investing in women entrepreneurs, as studies have shown that women provide stronger returns on investment despite receiving less funding than their male counterparts. Data shows there is a lack of risk and venture capital funding being received by female entrepreneurs or founding teams. This is a critical bridge to overcome as diverse organisations lead to stronger financial returns in the long run.

“While South Africa faces many economic challenges, the country’s capacity to innovate bodes well for the growth of the economy and the creation of employment. South Africa has the potential to become a global incubator for innovation, because adversity tends to breed innovation. But this innovation must be actively encouraged, and it’s essential that we invest in entrepreneurs who are driving this process,” concludes Nee-Joo.

KTN Global Alliance Africa project is a six-year project funded by UK Aid through Innovate UK (GCRF) and Foreign, Commonwealth and Development Office (FCDO). Four project-level interventions were piloted in 2021 in Kenya, Nigeria and South Africa with one of the interventions focused on Place-Based Innovation.

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