JOHANNESBURG – The approach that South African lawmakers take to regulating internet businesses could make or break the growth of the country’s digital economy, a report from Fifth Era, a Silicon Valley-based investment and advisory firm, finds.

If digital technology is going to have as profound an effect on industries and economies as research suggests, then South Africa should worry about whether tech entrepreneurs choose to launch their businesses here, and whether domestic and foreign investors choose to back internet businesses here, said Matthew C Le Merle, managing partner at Fifth Era.

“If domestic and foreign capital is scared away, the tech entrepreneurs will leave,” Le Merle said.

He was presenting the South Africa findings from the report, which surveyed 475 investors in 15 countries to assess how potential regulation might positively or negatively impact capital investment into internet companies.

The ‘internet investors’ surveyed needed to have a net worth, excluding their primary residence, of $1 million or annual income of $200 000.

The survey found that 89% of global investors view the legal environment as having the most negative impact on their investing activities, while 75% said they are uncomfortable investing in business models in which the regulatory framework is ambiguous.

As lawmakers consider how to regulate areas such as copyright and intellectual property (IP), liability, censorship and privacy and security, they will have to carefully consider not only what to regulate but the pace at which to regulate, Le Merle said.

The challenge for lawmakers is to regulate the ‘10% bad’ while not losing the ‘90% good’, he commented.