The Importance of start-ups

Unemployment is a big problem in South Africa, officially recognised by Statistics South Africa at 26.7 percent in quarter one of this year.

Narassa Govender, the manager in the investments team at Awethu Project, believes that start-ups are the answer to solving the economic problems in South Africa.

The Awethu Project is an investment company which invests in small, medium and micro-sized enterprises.

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Govender said most people relied on the government and big corporations to drive economic growth and create jobs. The government, however, is limited by a shrinking tax base, increasing social grants and increasing capital expenditure, putting pressure on its already constrained budget.

Big corporations are also not the answer, according to Govender, as they tend to operate with layers of bureaucracy, maintain large salary bills and are not immune to economic troubles.

Start-ups, however, operate on minimal budgets and focus on getting the biggest ‘bang for your buck’, which becomes the most effective way of doing business during an economic downturn.

Start-ups are created by the ability to produce products or services by looking at problems in an unconventional way and responding to the consumer market. This innovative way of running a business is attractive to investors during an economic downturn because investors look primarily for high growth, high yield opportunities during this time.

This means that start-ups are more likely to gather necessary investments than big corporations.

Govender said in order to support start-ups, skilled people must be willing to take pay cuts to gain employment, and cheap office space and equipment must be made available to the owners of start-ups.

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South Africa’s National Development Plan states that start-ups should account for 90 percent of all new jobs. The Awethu Project itself, through investing in start-ups, has created about 600 jobs and supported about R13 million in revenue growth in the last three-quarters of operation.

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