The Swedish benefit from a strong welfare system and free education for all. These things dare people to take risks
South Africa could learn from Sweden’s success in developing technology companies. Right now, South Africa doesn’t feature when it comes to the world’s top billion-dollar technology firms.
Sweden, however, with just 9.6 million people, is giving the famed Silicon Valley in California a run for its money.
A couple of the most well-known tech companies to come out of Sweden are Skype – which provides internet video chat and voice services – and Spotify, a music streaming, podcast and video service.
Other important Swedish tech companies are Ericsson; uTorrent, a file-sharing service; King.com, which produced Candy Crush and other popular games; Pirate Bay, a file-sharing site; Mojang, the maker of the game Minecraft; and Klarna, a payment platform.
When South Africa was going through political transformation in the 1990s, Sweden was using the decade to boost its internet connectivity.
Lisa Wiklund of the University of Gothenburg, in a dissertation entitled Circus Days: The 1990s as an Iconic Period of Time for Swedish Internet Entrepreneurs, gives three reasons for Sweden’s head start in the development of internet and technology companies.
First is the Swedish government’s substantial and early investment in broadband infrastructure. Sweden’s average internet speed is now the world’s second-fastest at 19.1Mbps, according to the State of the Internet Report for the fourth quarter of 2015. Compare this with South Africa’s sluggish 3.1Mbps.
Secondly, the 1998 so-called home-PC reform gave everyone employed in Sweden the chance to borrow a computer to keep at home, and then later buy it at a favourable price. Today, Sweden has a 95% internet penetration rate, compared with South Africa’s 46%.
Thirdly, Sweden is a relatively rich country, with a good welfare system and free education for all. A well-established welfare system dares people to take risks.
“This is quite interesting and counters ideas of social safety nets pacifying people,” says Olle Dierks, who works in the innovation procurement and internationalisation field at Swedish Incubators and Science Parks (SISP).
“My friends ... some of them used their parental leave time [Swedish parents are entitled to 480 days of paid parental leave between them] to start a company, actually, so time can be used wisely for business purposes as well.”
Dierks says there has been a shift – from working for a big company to entrepreneurship – over the past two decades in Sweden, and puts it down to a few “lifestyle factors”.
“We are at a time in Sweden where innovation and entrepreneurship are quite strong ... You want to take care of your own time and this is perhaps not possible if you go to a big company.”
Another of the reasons for Sweden’s success is the thousands of hubs set up to incubate these ideas. Dierks’ organisation is one of these.
SISP is a nonprofit association that has as its members 5 000 companies with 72 000 employees. It says its members “offer business development, project development arenas, seed-capital funds, accelerators and effective collaboration with industry, the public sector, universities and institutes”.
“Many of these are start-ups that get support mechanisms to take an already working product or service to the market.
“I drive a number of programmes to make innovation happen on more general terms.”
But there are companies in South Africa also driving innovation, such as the Mentor Hub, which sees “opportunities and potential business ideas every day, enabling and assisting people to fully capitalise on these opportunities where possible”, says one of its founders, Julian de la Hunt.
Based at the Gauteng provincial government’s Innovation Hub, the Mentor Hub is a platform that matches those who have knowledge with those who need it, creating an ecosystem for the dynamic transfer of skills.
“We have amazing people with incredible ability and innovative thinking that matches and often surpasses the rest of the world. Unfortunately, we are a developing country, which has to spend money on a number of other basic needs and public infrastructure, as opposed to developed nations whose funds can go into small businesses and sustaining the entrepreneurs until their businesses realise a profit,” he says.
Opportunities for start-ups to receive funding from angel investors (wealthy people who provide capital for business start-ups) and venture capital are gradually becoming more widely available.
But the Seed Academy Start-up Survey 2015 reveals that only 3% of South Africa’s entrepreneurs have funded their businesses from the funding vehicles formally established to support them – about 83% of these ventures are self-funded.
According to the survey, South Africa also has one of the lowest survival rates of new businesses when compared with its emerging-market peers – as much as 70% of small businesses fail in their first year.
“Opening a business is very easy, but creating a sustainable, profitable and successful business is where the challenge comes in. Barriers to entry and financial support, as well as labour legislation and investment appetite for risk, can be catastrophic,” says De la Hunt.
The South African government, in partnership with the private sector, has initiated many programmes to develop entrepreneurs with the aim of reversing this trend. But, as Dierks points out, “what I have heard is that there is a lack of trust between different stakeholders in South Africa”.
“There is a strong willingness to see cross-organisational partnerships happening. But a lot of trust-building needs to take place for that to happen.”
De la Hunt speaks of a “fear of failure in South Africa”, which “overpowers the enthusiasm to succeed”.
“I believe this is a South African cultural issue that is endemic but not impossible to change, and this is the space that we find ourselves in daily,” says De la Hunt.
“One of the reasons I found South Africa so fantastic is that it is really complex,” says Dierks, who has visited the country twice as part of innovation collaborations with Sweden.
“From an innovation perspective, Sweden is really set. We have a well-developed economy, which is good if you want to start a company.
“But some of the things, like security, aren’t always good when it comes to innovation. One thing you can say about South Africa is that it’s a mess and it is developing. And I find that fantastic because, if you have a country with 11 official languages and a lot of different cultures meeting, that is a really good foundation to make things clash and happen and come out of that.”