For all the glory South Africa is a risky country to start a business in, especially if you start a business that is going to compete against bigger more established businesses. It might be an easier path to take, but it will be difficult to build successful small and medium-sized enterprises (SMEs) in South Africa. No one said it would be easy and anyone who has started a business in Durban, Cape Town sometimes knows this first hand.
As South Africans, we have an extremely broad understanding of what it takes to start a business, and how difficult it can be to obtain your permit. The truth is that before you go through the process of opening up a new business, it is extremely important to know why you are doing so. What are you trying to achieve? More important, why take the risk?
There are a lot of benefits to starting a business in South Africa. You get all the tax holidays, cheaper labour, and easier regulations compared outside the country. But there is an elephant in the room. A big, cumbersome and expensive elephant that’s called compliance. you must comply with all governmental rules and regulations. This blog post gives you the considerations you need to make before starting a business in South Africa.
South Africa has one of the most developed economies on the African continent.
There are many benefits of choosing to start a business in South Africa. It has one of the most developed economies on the African continent, and the challenges are less than they would be in countries such as Nigeria or Angola.
The biggest risk you'll face is your safety. There have been plenty of public shootings, and there's also been a lot of violence against women.
However, with easy access to vital services like electricity and water, and good health care, you can get by quite easily if you're based somewhere like Johannesburg or Pretoria.
Starting a business in South Africa is a risky proposition. The country's economy has long been considered stable and prosperous, with a well-educated workforce and reasonable levels of infrastructure. In some ways, the country has become an attractive place for businesses to do business.
But many reasons make starting a business in South Africa a difficult prospect:
Laws. You will have to comply with various laws and regulations, including those regarding taxation, employment and local procurement policies. In addition, there are national security and immigration requirements for foreign nationals.
Business environment. The South African government encourages entrepreneurship through its economic growth program, which aims to grow the economy by creating jobs and wealth through the growth of small and medium-sized businesses. However, the program is not without its critics; some accuse it of being too focused on big companies that offer large benefits to government officials.
Workplace safety concerns in general. South Africa has one of the highest rates of workplace fatalities in the world — a situation that calls into question whether employers are doing enough to ensure their employees' safety at work.
Yes!! South Africa is indeed a dynamic country, which means you can take advantage of the best of both worlds: the advantages of a developed economy, like financial stability and access to technology; and the advantages of a developing economy, like new markets and cheap labour.
However, starting a business in South Africa comes with some unique challenges that can trip up even the most well-prepared entrepreneur. Among these are high levels of crime and corruption, an almost nonstop political news cycle, and bureaucratic processes that can be complicated to navigate.
Here are some things you need to know before you decide to start your own business in South Africa:
Start small. Don't try to build a large company right away. Investing too much money in your business at first might be tempting, but it's a recipe for failure. In South Africa, you're better off starting small with low-risk investments until you have a proven track record.
Beware of bribes. Don't think that building an empire is going to protect you from all forms of corruption — especially if you're from South Africa or neighbouring countries. You might think that paying off officials will save you from having to deal with red tape and bureaucracy, but it's more likely that you'll be paying for everything in cash anyway
Some of the major cities are Cape Town, Pretoria, Durban and Johannesburg.
South Africa is still a young country, and it has yet to develop its developed economy. Many of the big corporations have moved out of the country, leaving behind several small businesses.
With 34.9% unemployment in 2021, many South Africans are looking for work. International companies are also expanding their operations in South Africa, which makes an attractive market for expatriates who want to move there with their families.
But there's not much in the way of transferable skills available locally, so those that decide to move to South Africa need to be aware that starting a business can be very risky.
One reason is the rampant crime rate. The business climate is changing rapidly and career opportunities are growing quickly. The best thing you can do is get out on the ground floor with a strong financial base and a lot of work experience in your field.
It's not uncommon to hear entrepreneurs say they are going to start and run their business in South Africa.
But is it wise? Is there a risk involved?
There is a lot of hype on the internet about starting your business in South Africa. But what if you're one of the first few thousand people who move here, are you going to get the same opportunities as someone with an established business already here?
You might think that you'll have an easier time with things, but at the end of the day, you have to think about your circumstances and risk factors. You also have to consider how much time and money you can spend without making money.
That said, there are several unique challenges to doing business in South Africa.
There are many unique challenges to doing business in South Africa.
The first is South Africa's sometimes-lengthy and well-documented history of "white supremacy," which has left much of the country still feeling very uncomfortable with its legacy.
Although there are some signs of progress, such as the end of apartheid in 1994, there are still lingering attitudes that result in an undercurrent of social unrest and violence. A business might be considered risky even if it's not located in a particularly challenging part of the country.
The other big challenge is a legal system that often takes its time to get things done. This can make setting up a business very difficult because it can take months before you can legally open bank accounts or begin working on contracts.
And then there's the big one: South Africa doesn't have much infrastructure for entrepreneurs — no low-cost credit and no low-cost or free workspace available. Many people who start businesses are forced to rent expensive commercial space or buy their equipment and office supplies.
And then there's the issue of funding your startup, which is often difficult unless you have a significant amount of personal savings or come from a wealthy family that can lend you money.
In South Africa, a lot of entrepreneurs who start businesses there don't know how hard things are going to be, because they don't know what South Africa is like.
The challenges of doing business in South Africa are unique.
It's easy to make South Africa sound like a paradise for entrepreneurs. The country's economy seems to be booming, and the local currency is relatively stable. It's also home to some of the world's largest companies — Coca-Cola, Woolworths and Nando's, for example.
But the reality is that South Africa has some unique challenges that could pose a serious threat to your business if you're not careful.
The local currency, for instance, has suffered quite a bit of volatility in recent years. Between 2008 and 2009 alone, the rand lost more than half its value against the U.S. dollar. Inflation is also a major issue in South Africa, but it tends to be lower than the rest of the continent; countries like Nigeria and Ghana have experienced double-digit inflation rates since 2010.
Of course, there are ways to avoid those pitfalls — getting debt-free financing, for example — but you can't protect yourself from every potential problem in a foreign country. If you're planning on starting a business in South Africa as a foreigner or building a new company from scratch, think hard before you make up your mind.
Because the economy is controlled by the government
If you're considering starting a business in South Africa, understand that the country's economy is heavily regulated and controlled by the government. That means there are limits on what you can do, where you can do it and how much you can charge for your products or services. The government is not shy about making changes to these rules, either.
In October 2016, the government announced that it wanted to "open up" the economy by making it easier for businesses to operate in South Africa. Its goal was to create more jobs and improve the competitiveness of its economy. It also said that it wanted to promote entrepreneurship by lifting bureaucratic hurdles so that businesses can start up more easily.
To give a sense of how much control the government has over your business, consider these examples:
You need a license to sell many types of products, including some consumer goods such as toys and books, but not others like computers and telephones. In addition, licenses are typically needed to work with certain types of industries like agriculture or financial services.
South Africa is the only country in the world where business owners are not allowed to pay themselves a salary. That's right: no matter how much you earn, you work for yourself and not for your boss.
That means that if you're thinking about starting a business in South Africa, you have to take on extra responsibilities as an employer — from paying taxes to dealing with labour unions to letting go of employees who don't perform well.
Getting a business off the ground can be challenging, but it's also rewarding.
The problem is that South Africans tend to view entrepreneurship as a privilege reserved for those with connections or money to invest. This often leads entrepreneurs to focus on products rather than services and sacrifices quality in favour of quantity.
The market is very mature.
With a population of around 54 million, South Africa has a relatively small market. Consumers are also very unlikely to buy a new brand just because it is new. The market is very mature. Many established brands have been in the market for many years, which makes it difficult for new entrants to get a foothold.
The South African economy is not in good shape. It has suffered from high inflation, high-interest rates and low GDP growth for several years now. This means that consumers have less disposable income, which makes it more difficult to find customers for your product or service. Even though South Africa is an upper-middle-income country, there is still much poverty and unemployment, especially since the end of apartheid in 1994.
Labour regulations are strict. It is quite difficult to hire and fire employees because South Africa has very strict labour laws. Many businesses prefer to hire independent contractors rather than full-time staff because they do not have to provide benefits such as medical aid and provident fund (retirement annuity).
South Africa has a high crime rate compared with most other countries in the world. Many business owners fear that they will be robbed or held at gunpoint by criminals if they open their doors too early or close them too late.
1) A saturated market
South Africa is known for being a highly competitive market. The market is very mature and there are already companies who have been offering similar products or services for many years before you start up your own business.
This means that you need to find ways to differentiate yourself from the competition by offering something new or different.
If you can’t offer something new or different, then you will need to ensure that your product or service is priced competitively and that you offer the best customer experience possible.
Corruption is still rife in certain areas of government
The government has been plagued by corruption scandals in recent years and South Africa’s credit rating has taken a knock.
Eskom, the power utility company, has also been subject to criticism for failing to invest in maintenance and upgrades which led to rolling blackouts across the country. This puts the government on the back foot as it works to attract foreign investors.
Cape Town is one of South Africa’s major tourist destinations but its water crisis serves as a warning for businesses that there are risks involved in setting up shop here.
The city is experiencing one of the most severe droughts in history and residents are warned that they need to use no more than 50 litres of water per person per day – less than what you might use doing a load of laundry! Some parts of South Africa indeed have abundant water resources but this water is not always properly managed or delivered equitably.
While many reasons starting a business in South Africa is a risky business, there is one reason that stands out among the rest: corruption.
Corruption and bribery are widespread in South Africa, as Transparency International’s Corruption Perception Index shows.
It is almost impossible to start a business in South Africa without paying someone a bribe. This is not the starting point for a political rant about corruption or lawlessness, or some personal story about how I've been ripped off by local government officials. It is simply a fact of life.
It takes time to start a business in SA.
It takes time to start a business in SA. The World Bank's 2017 Doing Business report ranks the country 73rd out of 190 economies on the ease of starting a business, just below the global average, and found it takes an average of 9 procedures to set up a business in the country, taking around 38 days at a total cost of 20.8% of income per capita.
By comparison, countries such as Thailand take just 5 days (3 procedures) and less than 1% of income per capita to start a business.
To establish a business, you need to register with the Companies and Intellectual Property Commission (CIPC), then register for tax with SARS and obtain a VAT number. You then need to open 2 bank accounts, one for your tax account and one for your operating account, followed by registering for other taxes such as Pay-As-You-Earn (PAYE), Unemployment Insurance Fund (UIF) and Skills Development Levy (SDL).
The biggest complaint from entrepreneurs is that it takes too long to get registered by CIPC. "It's not an easy process," says Rene Tshikuna, co-founder of food delivery startup Yumcious. "There are so many documents that need to be submitted."
Tax can be high and complicated
If you run a small business, you know how exciting and rewarding it can be to see your hard work pay off. Yet there are plenty of things that can trip up a small business and prevent it from succeeding — including being undercapitalized or inexperienced, having unclear goals, not having the right people in good roles, or just plain bad luck.
Some risks are much more specific to certain areas than others. In South Africa in particular, there are several risks you need to consider before starting a business here.
Taxes
Tax can be high and complicated. In South Africa, income tax rates range from 18% to 41%. The government also levies value-added tax (VAT) at 15%. If you have employees, they will pay income tax on their earnings, while you will pay a skills development levy and unemployment insurance fund contributions on their behalf. Other taxes include a fuel levy, cigarette taxes, and sin taxes on alcohol.
It is also difficult to find reliable workers in certain industries.
In South Africa, it can be difficult to find reliable workers in certain industries. This is because it is the norm for people to change jobs regularly. The reason why people change jobs so frequently is that they are underpaid or the wages do not meet their needs.
In addition to this, the cost of living has increased dramatically over the last few years and many people have found themselves in a situation where they cannot afford to pay their bills.
The majority of businesses in South Africa rely on cheap labour to survive. Unfortunately, this means that there is always a high turnover rate and most companies end up closing down within five years of opening their doors. This means that if you want to start your own business, you need to be prepared for the worst.
There are also concerns around crime and safety
South Africa has a few factors that make it difficult for businesses to flourish. For example, the economy is not in fantastic shape and there is a lot of unemployment. This creates a lot of pressure on businesses as they are forced to try and achieve success while also trying to maintain relationships with their employees.
There are also concerns around crime and safety, as well as the political tension surrounding land reform. These issues can cause major instability in the country.
But this doesn’t mean that you shouldn’t start your own business in South Africa! If you have a good idea, you should pursue it and try to make it work.
If you want to start your own business in South Africa, here are some tips:
Find a local partner or mentor who can help you navigate the country.
Make sure you’re working with professionals who won’t take advantage of you for being a foreigner.
Find an attorney who can help you with any legal issues that may arise.
Be patient! It takes time for businesses to get established anywhere, but especially in South Africa where there are so many issues at the moment.
In Conclusion
The truth is that starting a business in South Africa is anything but easy. If you are foreign, it becomes even more complicated, as you face some additional hoops to jump through just to get your business started. However, if you are willing to take the plunge and want to start your own business in 2017, these risks can be mitigated over time with a little perseverance and hard work.
The truth is that doing business in South Africa isn’t easy. But the risks and challenges shouldn’t scare you away from trying.