Until recently few emerging economies were looking to attract foreign entrepreneurs to set up in their country, much of this because of the fear that foreigners could steal jobs that should go to locals, or because it is hard for governments to justify spending incentives on non-tax paying visitors.
But that it seems is slowly changing, at least in some emerging economies like Chile which in 2010 launched a $40-million programme (Start-up Chile) to attract 1,000 entrepreneurs within three years, with the only requisite that they set up in the South American country for six months. Chile reached the 1,000 mark in September last year. Since then a long list of countries – including most recently Jamaica – have followed with similar programmes.
Putting a lid on them
South Africa doesn't have a start-up programme yet and looks unlikely to join the bandwagon any time soon. Instead it looks to be clamping down on immigrants wanting to start a business there.
Last year the Department of Trade and Industry withdrew a bill (the Business Licensing Bill) that would require all businesses to obtain a license to operate. The bill is being reworked and may be launched under a new name, after substantial opposition from business. Many believe the government's real intention with the bill is to control the large number of foreign traders that have sprung up there in recent years.
The latest cause for concern comes with fresh immigration regulations that took effect in May under the new minister of home affairs Malusi Gigaba (pictured above).
Among various new measures that will affect foreign visitors to South Africa, the new regulations state that a foreigner issued with a business visa must now have a staff complement made up of 60% South Africans or permanent residents. The previous requirement was for only five people. On top of this the foreigner will have to prove that their business will benefit South Africa before being granted a business visa.
Immigrants add value
But South Africa badly needs more new ideas and talent to inject into its economy which is fast stagnating. In this immigrants can play a key role.
In the US over 40% or more of businesses are started by entrepreneurs or the children of entrepreneurs. They are also nearly twice as likely as US-born citizens to start new businesses each month, while more firms run by immigrants export goods or services than do non-immigrant firms - a real boost for their new found home.
This, while the Hamilton Project (part of think tank the Brookings Institution) points out that on average, immigrants raise the overall standard of living of American workers by boosting wages and lowering prices, rather than effecting a race to the bottom.
In South Africa the families of immigrants still play a major role in entrepreneurship - for example Jews, who arrived in the early 1900s and Indians, who began arriving in the 1860s mostly as indentured labour, both play a significant role in business ownership in the country.
How to score
Apart from launching a start-up programme such as Chile's, another way to get smart people to move to your country is by giving them a start-up visa. A number of developed countries have begun to do so.
The hope is that in return for residency, high-growth entrepreneurs will help create jobs and bring with them new ideas to stimulate the economy of their new country. This kind of visa is good for those emerging economies sceptical about being swamped with low-skilled labours that may compete with local workers.
While the US is still debating a Startup Visa, two countries offer interesting examples for policymakers from emerging economies - the UK and Canada.
The UK, which introduced a new entrepreneur visa in 2008, in 2012 added an additional route tailored for recent graduates from UK universities with entrepreneurial ambitions.
Canada now allows immigrants (capped at 2 750 a year) that work with incubators and venture capital funds to take out a start-up visa (the Start-up Business Class), launched in April last year. Applicants must secure at least $75 000 from a designated Canadian angel investor group or $200,000 from a designated Canadian VC fund.
In this way the business support community and investors are used to filter applicants, rather than civil servants with no business experience that have to pour over an applicant’s business plan (as in Chile and
Brazil’s investor visa – which in the latter can take up to nine months to secure).
Should you put cash down?
The first question for policymakers when designing an investor or start-up visa is whether to have applicant invest a minimum start-up capital.
Brazil asks for R$150 000 for a five-year renewable investor visa (817 were issued in 2012), while Chile (one-year renewable) doesn’t have a minimum investment requirement - but applicants must produce evidence of the funds they will need to start the business and submit a report of the impact of the business and structure.
But the risk is that an entrepreneur won't always end up doing what they promised in the time prescribed by governments (which is often very limited).
Those jobs they pledged may not materialise. It's probably because of this that one group of attorneys in Chile says bureaucrats there often adopt a strict approach when applicants apply for a second year of residency under its investor visa. This is the likely counter to waiving capital requirements.
Madeleine Sumption of the Migration Policy Institute (pictured above) points out however that tight deadlines may discourage risk-taking or prevent entrepreneurs from adjusting their business plans in sensible ways if these decisions would jeopardise their visa status. The trick is to get the balance right.
Start-up South Africa?
South Africa should do more to attract immigrants. Compared to many emerging economies it is an attractive destination to set up a business. It has an advanced financial sector, relatively good infrastructure and a good legal system. Costs are low and the middle-class can enjoy a high standard of living.
With Africa ow experiencing soaring growth, the country's leading cities Johannesburg and Cape Town could become the next start-up capitals of Africa. Encouraging more foreign high-growth entrepreneurs to set up there and getting rid of unnecessary red tape will go some way to help the country on its way to achieving this.
Stephen Timm writes on small business. He currently lives in São Paulo, Brazil but is originally from Cape Town, South Africa. For more on the start-up scene there, visit the Silicon Cape initiative and Cape Town Activa.
Stephen Timm is a