Regulating the internet in South Africa could have serious consequences for investment in the country, potentially damaging its prospects for growth.

That’s according to a new report from investment advisory firm Fifth Era.

As the report notes, internet businesses require capital to fuel their growth, and that capital comes both from local in-country investors, as well as from international investors in the form of FDI.

Thing is, those investors are almost always put off by ambiguous regulatory environments.

That’s a stark warning for South Africa, where legislators are trying to introduce a raft of new online regulations, ranging from cybercrime to taxation and copyright, but which is struggling with low levels of growth.

According to Fifth Era researcher Matthew C. Le Merle, most governments understand how important a driver of investment the internet is and have robust innovation policies in place, those policies are often at odds with the regulatory frameworks they put in place.

And when those regulations are too tight, investors tend to look elsewhere, as will the innovators and entrepreneurs they’re looking to court.

“The notion of an innovation-based strategy always collapses down to the fact that we need entrepreneurs and venture capital and both are scarce,” Le Merle comments. Entrepreneurs have a choice of whether or not to build a business, and where to build a business. If you make it difficult for entrepreneurs to do business in your country they will choose to go elsewhere, he says.