A report commissioned by the Cape Innovation and Technology Initiative (CiTi), Wesgro, and the Allan Gray Orbis Foundation – with the support of the Western Cape Government – has confirmed that the greater Cape Town area, including Stellenbosch, is Africa’s tech capital.
The report by Endeavor Insight entitled ‘Evaluation & Network Analysis of the Cape Town-Stellenbosch Tech Sector’ was launched on 31 July at the Bandwidth Barn in Woodstock. Endeavor Insight is the research division of Endeavor, a global non-profit organisation that supports high-growth entrepreneurs and ecosystems, and has completed research on entrepreneurial ecosystems across the world.
“With South Africa’s current unemployment challenge, the Allan Gray Orbis Foundation believes the study was important so as to understand the tech entrepreneurial ecosystem in Cape Town which has a great potential to accelerate meaningful job creation,” comments Karen Gabriels, head of Finance and Operations, Allan Gray Orbis Foundation.
The report aimed to discover the current state of the Cape tech entrepreneur community and identify where the opportunities for growth lie. The report is based on interviews with 150 local technology entrepreneurs and research into more than 450 local tech founders and their companies in the Cape Town and Stellenbosch area.
The report reveals that the Cape entrepreneurial tech sector is significantly more productive than other African cities, employing more than double the people than Lagos and Nairobi combined, with 450-550 entrepreneurial companies employing between 40 000 to 50 000 people. In comparison, the Lagos and Nairobi tech sector employs 9 000 and 7 000 people respectively, while a promising 3 per cent of local companies have reached scale (100+ employees), comparable to Nairobi’s 1 per cent and 2 per cent in Lagos.
With the potential for greater job creation in the digital economy, a key recommendation from the report was an increased focus on investment into talent development. “As an integral catalyst for the ecosystem’s growth, we are hearing a similar challenge across African tech sectors – sourcing specialised talent for digital teams is seriously limiting business growth. The report was great validation that the CapaCiTi Tech Skills and Job-readiness programmes we drive are completely market relevant to assist entrepreneurs, corporates and governments to understand and better solve their talent constraints to growth”, commented Ian Merrington, CEO of Africa’s oldest tech incubator, the Cape Innovation and Technology Initiative (CiTi).
Findings revealed that of the more than 500 entrepreneurial companies in the tech sector, 20 per cent are working in e-commerce and SaaS sectors, with 15 per cent working in fintech. Putting Cape Town on the map is internet giant Naspers, celebrated as Africa’s highest-valued tech company. Further to this Clickatell, BrandsEye and GetSmarter were noted as Cape Town-based tech companies with a strong global presence.
“The dynamism, productivity and high-impact companies of Cape Town’s tech sector make it stand out as one of the most successful models in Sub-Saharan Africa. It has generated the continent’s most highly valued tech company as well as other software businesses that have reached scale, exited for significant sums, or grown to become leading businesses on the continent,” commented Rhett Morris, director of Endeavor Insight, who have similarly conducted research in tech hubs globally as part of the Global Entrepreneurship Research Network’s initiative to map entrepreneur communities.
The research highlights the vibrancy of the Cape’s tech entrepreneur community and an interactive network map produced alongside the report illustrates the interconnectedness of the Cape’s entrepreneurs with regards to mentorship, investment, employment and inspiration. Cape founders of scaled tech companies (100+ employees) continue to engage with the ecosystem, with 30 per cent of founder-to-founder mentorship coming from these companies, compared to only 12 per cent in Lagos and 4 per cent in Nairobi.
The top five reasons for starting a tech company in Cape Town included:
- It is an inspiring place for entrepreneurs to network
- Cape Town is perceived as a tech hub
- Vibrant local tech business community for start-up support
- A globally competitive lifestyle that promotes innovation; and
- Strong universities and major companies that help bring talent to the city
The Western Cape Minister of Economic Opportunities, Alan Winde said: “Cape Town has made a name for itself as a tech city through the hard work and innovation of its tech entrepreneurs, and investments by major international tech firms. It is because of this, and the enabling environment created in the Western Cape, that the sector is responsible for supporting 40 to 50 000 jobs. Nurturing this sector and developing a wide skills base to be able to sustain this market is more important than ever before as we enter the Fourth Industrial Revolution.”
While the Cape tech sector has shown significant growth, dynamism and innovation over the last decade, there were challenges noted by companies interviewed. Chief among these are access to talent – a problem also encountered in Johannesburg and other African cities. Second to this was access to equity and finance, although the Cape was performing better than Nairobi and Lagos in this regard. Lastly, access to customers was noted as a problem being faced by these entrepreneurs.
Wesgro CEO, Tim Harris, commented: “This report shows that the Cape is the tech capital of Africa – a place of innovation and the future. It also shows us that we can do even more to unlock its full potential and become one of the top tech destinations in the world. The tech sector will be a key driver of economic growth and job creation over the course of the next 10 years and we look forward to watching this ecosystem flourish. Already our investment promotion team has helped land over R1 billion in investment in the Cape tech sector over the last five years. We look forward to growing this investment total even further.”
The Cape Endeavor Insight Report is available for download on CiTi’s homepage, and an interactive network map will be published by Endeavor Insight on 12 August.