The growth of South Africa’s burgeoning digital economy is dependent on the creation of a business environment that makes room for entrepreneurs and SMEs to grow into fully fledged businesses, writes Mamongae Mahlare, Group CEO of Takealot.
Around the world, digital companies have catalysed economic growth by enabling entrepreneurs and SMEs. This has been done by allowing these small businesses to participate in the broader economy, providing opportunities for them to grow. The power of the digital world is that any SME’s regardless of physical location, can have a route to market that is national, affordable and quickly accessible.
South Africa is on the cusp of realising that same potential. This would be possible only if the government and business work together to create an enabling environment. So how do we create such an environment that enables inclusive and transformative growth?
One option is to create a new set of laws and regulations to specifically regulate businesses participating in the digital economy. This involves creating laws that address how digital businesses operate, either by preventing certain types of practices or by creating incentives for participation. Regardless of how it’s done, this type of regulation will only work if it creates an equal playing field for all South African businesses — digital and physical, given that they both compete for the same customer needs and also many retailers operate in both hence the rise of omnichannel.
Another approach would be to update certain existing laws and regulations where the legislature never contemplated the digital economy when those laws were initially drafted. This option would be more straight-forward as it ensures an equal playing field for all businesses and simply extends, or at least clarifies, the reach of existing laws and regulations and how they apply to firms participating in the digital economy. However, these changes could hamper the transformation and enablement potential of the digital economy in the future.
How regulation can help growth
Firstly, to grow competitive small businesses, there’s a need for collaboration along the value chain. A last mile logistics service, for instance, can help SMEs outsource a critical business service, freeing up resources to focus on getting a product ready for market. This sort of arrangement helps small businesses gain economies of scale by accessing shared services that strengthen their buying or selling power and business infrastructure. But this is only possible if the right conditions exist for collaboration that allows businesses of different sizes and maturity to meaningfully collaborate.
Second, to survive the highly competitive nature of business, SMEs require investment and support. And so, good regulation needs to maintain healthy competition that benefits consumers but also sharpens the effectiveness of players in the digital ecosystem. This allows them to make a profit and hence a return on investment to encourage continued investment in innovative solutions that work for our local context to continue creating value for consumers. Good regulation also contemplates how investment in SMEs in this sector can be incentivised or benefits accrue to those enabling or investing in these SMEs.
Over time, as these SMEs become more effective and successful, they create unique new opportunities that can be serviced by new types of other businesses providing relevant products and services. For example, as these SMEs grow they need courier services, accounting services etc.
What does South Africa stand to lose if unsuitable regulation is made?
It is very difficult to reverse regulation and therefore it is critical to ensure that we are slow to trigger more regulation in a sector that is still so early in its development and has so much potential to create jobs for unemployed youth and enable SMEs that will increase the equitable participation in the economy.
To understand the economic impact of ecommerce, we must consider the magnitude of the multiplier effect of growth. The case of Takealot Group is a good way to illustrate this.
Having helped build the ecommerce industry from the ground up, Takealot group currently holds a market share of around 2% in the retail sector. Our ecosystem supports 33,000 jobs across the businesses’ three platforms: Takealot.com, Superbalist and Mr D. These include impact from the 8,000 SME’s on Takealot and over 10,000 restaurant partners on MRD that are mainly SMEs too. The GDP contribution of the group in 2021 was around R19bn and R2bn in taxes.
This is the multiplier effect in action. But what would it mean for South Africa more broadly? A potential game changer indeed.
For starters, imagine what an extra R12.5 billion could do for the fiscus? That’s the public salary of approximately 10 000 doctors, 33 000 nurses, or 46 000 teachers for an entire year. Or, enough to meaningfully address our energy crisis — if you consider that in 2021, Germany gave South Africa R12.5bn “to get away from coal and Eskom’s broken grid”. Imagine what that amount could also do for employment, if you take the fact that R18.4 billion was allocated in 2022/23 and 2023/24 to support the creation of short-term jobs under the presidential employment initiative. And so, with the revenue generated from e-commerce, we could support the further development of the country’s ICT sector and help curb our massive youth unemployment crisis.
There is a good reason why ecommerce is often referred to as The Great Equaliser. By its very nature and design, it can make a transformational difference to the lives of everyday people through the access it unlocks, the businesses it can enable and the many jobs it can support. So, while we must ensure regulatory clarity, we should be careful to unintentionally harm much needed growth and our own prospects – South Africa’s economic and democratic future depends on it.