INNOVATION, particularly in developing countries such as SA, is held hostage by regulatory ambiguity. And it’s causing investors to shy away from pouring funds into new Internet businesses.

A study by Silicon Valley-based investment and advisory firm Fifth Era (commissioned by Google and released at a press conference in Johannesburg last week) says governments in developing countries need to do more to ensure that regulation does not inhibit investment in the information and communications technology (ICT) sector.

The rise in Internet access has created a platform for entrepreneurship. Traditional economic sectors have been substantially transformed by this rapid and unprecedented expansion.

The Internet is enabling rapid development and is driving GDP growth and job creation. Consumers also use it more and more to gather information and network socially.

Rapid technological change is not always met with the right response, however. Regulators have a hard time keeping up with the state of innovation, Fifth Era says. It can be difficult for them to “foresee the unintended beneficial or adverse consequences of their decisions”. Yet it admits that “inaction can also have negative impacts on innovation”.

Fifth Era managing partner Matthew Le Merle says SA businesses acknowledge that their future is a digitally enabled one. However, investors cannot operate in a grey area.

“Internet investors are concerned about regulatory ambiguity. Investors fear regulations the most,” he says.

Fifth Era interviewed 30 SA-based investors and all said the current policy environment in the technology sector had a negative impact on their investment activities. Of those surveyed, 87% said they would increase their investment if SA adopted anti-piracy laws similar to those in the US.