Starting Up A Business In The Rainbow Nation – Johannesburg/Sandton
Last week, our team already informed you about starting up a business in South Africa – focusing on Cape Town as both “Africa’s digitech hub”, a home to two thirds of South Africa’s population and a place of great opportunity for foreign entrepreneurs and investors! This week, we will continue the journey to South Africa, however with a stop in Johannesburg and Sandton, Johannesburg’s ‘financial capital’. Similar to last week, the general aim of our article this week is to illustrate that there are various good reasons for a relocation to South Africa. However, rather than thinking in terms of immediate profits and limitless returns, this article will remind entrepreneurs and investors that a good profit goes a long way – impact and time wise!
Why Johannesburg, Why Sandton? – Building and Re-Shaping Cityscapes
According to Traxcn, 1,086 tech start-ups are currently working from Johannesburg with Sandton being home to, among others, various fintech, SaaS and healthtech start-ups as well as reputable and innovative VC funds such as Sandton Capital Partners and Grovest. The now New York-based VC firm CRE Venture Capital also started up in Johannesburg, which proves that starting up in South Africa can very well constitute a chance to lay the foundation for planning global expansions and fostering global networks. As stated in ‘The Global Startup Ecosystem Report 2021 (GSER 2021)’, Johannesburg is one of Africa’s “top five start-up ecosystems” following Cape Town (Rank 1) and Lagos (Rank 2). With an estimated population of around 6,065 million, Johannesburg is more densely populated than Cape Town, however its employed population ratio (absorption rate) lay at 42,9% in October 2021 in comparison to Cape Town’s absorption rate, which balanced at 47.4%.
The latter could both be regarded as a disadvantage and an advantage. Indeed, some commentators have raised attention with regard to semigration trends to Cape Town and the popularity of Johannesburg falling a slight bit behind. As John Loos, Senior Economist and Property Strategist at the First National Bank (FNB) told the eNews Channel Africa (eNCA) earlier this year in January, surveys have shown that “the three commercial markets of industrial, retail and office space [have strengthened themselves] the fastest in Cape Town” with Loos making another educated guess that the attractivity of Cape Town to semimigrants and entrepreneurs might relate with the long-term life-style choices that they make. As Loos explained, negative events in the other regions in South Africa might have influenced semigration trends and the latter have consequently been accelerating economic development in Cape Town.
Should the semigration trend continue to speed up, entrepreneurs could certainly help to prevent that Johannesburg’s business scene will eventually face consequences and this, ironically, brings us to the benefits of starting up a business in Johannesburg and Sandton amid more insecure times, when the COVID-19 crisis is still ongoing and after the July 2021 Zuma Unrest – during which over 300 people were killed and “40,000 South African businesses were looted, burnt or vandalised” as Africanews reported. Making Johannesburg more attractive and safe certainly matters considering that it is also “mov[ing] towards fintech fame”. As Simnikiwe Mzekandaba writes on ITWeb, Johannesburg has performed very well in ‘The Global Financial Centres Index 31’, which was published in March 2022 as a joint effort between Z/Y Zen and the China Development Institute (CDI).
With Johannesburg ranking 56th out of 119 in the overall and 50th out of 113 in the fintech centres ranking, while further claiming rank 5 in the regional Middle East and Africa ranking after Dubai (1st), Abu Dhabi (2nd), Casablanca (3rd) and Cape Town (4th), the metropole certainly can be described as an emerging fintech hub! Fintech start-ups such as VALR and Ozow are among those taking the lead in Johannesburg – notably, VALR promotes ‘borderlessness’ by buying and selling crypto and Ozow intends to make online payments easier by allowing customers to add their bank to online shopping. The idea of the latter start-up is thus a bit similar to that of Klarna and the Dutch equivalent iDEAL – just at the national level in South Africa. But what more can be done aside from this very relevant project, which promotes access to a variety of essential and non-essential online services and products?
Arguably, start-ups actively have to inform their work by the current semigration trend and the reasons, which potentially underlie the latter! Indeed, inhabitants of Johannesburg have complained about safety for a while. In 2017/18, a survey published by the City of Johannesburg showed that the biggest issues which citizens were facing and complaining about related to safety (33,3%), unemployment (17,6%), alcohol and drug abuse (16%), and lack of basic services (6,8%). Especially, because more recently a rise in violent home robberies was observed by the Victims of Crime (VoC) survey 2021, a cross-sectoral response might be much needed to tackle these issues. Whereas research about home robberies has, in some cases, elaborated on the relationship between drug abuse and domestic burglary, what remains important emphasizing is probably that it needs to be worked on poverty and living standards before expecting that crime rates and drug abuse will drop and decline.
As the Borgen Project emphasized quite a while ago, “[c]rime in South Africa is a significant issue that is rooted in poverty and inadequate access to basic resources”. However, changes in recent times could actually equip us with solutions to reinvent cityscapes, infrastructures or support and access to basic services and – a good life. Start-ups and SMEs, but also policy-makers, accelerators, start-up hubs and international investors and companies in South Africa, who have an interest in preserving the business scene in and success of Johannesburg amid crisis times – should certainly consider working on projects that put an emphasis on local development, for instance, in the following domains:
- Labour and Employment
As was emphasized earlier, unemployment and the lack of employment opportunities constitute issues, which negatively affect the population in Johannesburg. Start-ups and SMEs, even if they choose to settle in Cape Town, should certainly make an active effort to foster networks between the two cities and work together with other stakeholders such as local municipalities, international companies and investors to strengthen such an effort and also benefit from the chance to scale up their projects.
In addition, start-ups in the domains of HR, labour and employment should find innovative solutions to involve locals in reshaping the city of Johannesburg and it way of life. Particularly vulnerable groups of society (i.e. drug addicts) should certainly be considered in this effort to tackle any challenge from the root. Even healthcare start-ups could make an impact in the domain of labour should they find digital solutions to offer psychological support accompanying labour integration etc.
- Housing and Security
In the domain of housing and security, start-ups should certainly put an emphasis on both making housing more affordable and secure, and on making sure that housing is suited to provide at the least for basic necessities (i.e. including in terms of space). In addition, they should focus their work on promoting climate-friendly solutions and energy efficiency – which illustrates that start-ups in the domain of finance could actually make an important contribution to innovating housing. Especially, because innovation in this domain can be costy, it might be the role of entrepreneurs and innovators to forge networks and partnerships or to find other ways to make this possible.
- Digitalization and Finance
Especially after Cape Town has been called “Africa’s digitech hub”, innovative start-ups from Cape Town should certainly be actively involved in developing solutions to support Johannesburg not only in the domains of labour and employment, but also with regard to the digitalization of society overall. Accelerators, start-up hubs and international companies should, in cooperation with the local municipalities, launch programmes to actively fund such an effort and forge closer ties between the two cities including with regard to the digitalization and digital finance. Actively promoting each city for its own strength – for instance Johannesburg as ‘finance hub’ and Cape Town as ‘digital hub’ might lead to attracting international investors with an interest into creating a real and lasting impact.
Rebuilding cityscapes truly can impact livelihoods – Tell us –
Which contribution do you want to deliver?…
Whether you are a start-up or a SME, if you are interested in relocating to South Africa, then we got you covered! Our team is specialized on supporting businesses between Germany and Africa and has knowledge across various African jurisdictions. Our support starts with providing help on immigration and relocation matters, but it does not stop there – taxes, tech, intellectual property and much more is all part of our expertise and services! Contact us today to ask us business-related questions about Johannesburg and discuss your (potential) plans and impact in (South) Africa! Sometimes change comes slowly – but we should never resist it, don’t you think?