South Africa’s digital platform sector is currently facing a crucial decision. A recent report by tech investor Naspers and the Mapungubwe Institute for Strategic Reflection (MISTRA) suggests that the country needs to establish “regulatory sandboxes” to accelerate innovation in this burgeoning industry. Regulatory sandboxes are controlled testing environments where new digital services can be trialed without undergoing a full, expensive authorization process.
The report highlights the importance of these sandboxes in providing a significant boost to South Africa’s digital economy. In recent years, digital services such as e-commerce and fintech have experienced rapid growth, largely driven by the COVID-19 pandemic and resulting lockdowns. The surge in demand for online shopping and digital financial services due to the pandemic’s impact has not been met with an equivalent pace of digital transformation in South Africa. One of the primary reasons for this slow progress is the evolving regulatory environment, which struggles to keep up with the complexities of the digital economy.
During the launch of the research report, Phuthi Mahanyele-Dabengwa, CEO of Naspers South Africa, emphasized the challenges caused by the mismatch between the high demand for digital services and the incomplete adaptation of the regulatory framework to support the market’s rapid changes. The report from Naspers and MISTRA calls for a more balanced regulatory approach that fosters innovation while also protecting consumers. It underscores the need for flexible regulatory frameworks that can adapt to the fast-paced nature of digital markets.
The report also highlights the uneven playing field created by tax loopholes and regulatory arbitrage, which puts local and established platforms at a disadvantage. Implementing regulatory sandboxes could allow small and emerging platforms to operate in a controlled environment, facilitating their growth and innovation without immediately subjecting them to the full spectrum of regulatory burdens.
In addition to calling for regulatory sandboxes, the report suggests other measures that could support the growth of South Africa’s digital economy, such as incentivizing local producers to sell their products on e-commerce platforms and fast-tracking the development of digital infrastructure.
If these recommendations are implemented, the report estimates that South Africa’s digital platform sector could contribute up to 91.4 billion rand, or $5 billion, to the economy by 2035. However, achieving this potential will require a collaborative effort from both the public and private sectors to create an environment conducive to innovation.
