The South African Cultural Observatory - Measuring and Valuing SA’s Cultural and Creative Industries

A Highlight on some of our published reports

The SA Cultural Observatory was established to undertake economic research for and about the cultural and creative industries in South Africa. We publish our reports in various media platforms, including this newsletter, with a view to empower industry stakeholders with information that we hope they will find useful, informative and can be relied upon when making decisions about the sector.

In this publication we put a spotlight on two recent reports which can be downloaded in full from our website (www.southafricanculturalobservatory.org.za). Our focus reports for this edition are: The Role of Venture Capital in Promoting the Cultural and Creative Industry (CCI) and The Development of a South African Cultural Export Strategy

# REPORT: THE ROLE OF VENTURE CAPITAL IN PROMOTING THE CULTURAL AND CREATIVE INDUSTRY (CCI)

This report sought to understand the role of venture capital in promoting the Cultural and Creative Industry (CCI) in SA. The paper critically examined current scholarly literature and reports on the role of venture capital to promote and support the CCI sector. Specifically, venture capital financing needs and trends in relation to the CCI sector were identified, current sources and future opportunities of venture capital support for the CCI sector were assessed, the types of support provided by venture capital to the CCI sector were established, and implications and challenges associated with venture capital support were unpacked together with recommendations.

The research brings to the fore some interesting insights, which we highlight below.

Venture capital funding exists on a continuum from top-down (direct government funding) to bottom-up (here the private sector is the dominant funder) approaches. Venture capital efforts for the CCI has gained in prominence with the shift towards developing the ‘cultural economy’ and ‘cultural industry’ which denotes a focus on economic aspects.

Venture capitalists are attracted to businesses, individuals and activities that are seen to be entrepreneurial and can generate substantial growth. The CCI has characteristics that are unappealing for venture capital investments compared to other sectors. These include lack of business training and management skills, limited access to tangible assets, reliance on public investments or funding, workforce profile that is contract-based/ freelance, fragmented and changing markets and difficulties in assessing and protecting intellectual property assets. Key issues emanating from the research reveal that globally and in South Africa specifically, access to venture capital funding for the CCI is difficult with venture capitalists supporting a few commercially viable businesses because venture capital or private sector investors often look for high growth potential with lower risks.

Differences were also noted in terms of venture capital support within the CCI where the audio-visual sub-sector specifically, has more investments than other sub-sectors. Discriminatory practices in relation to gender and racial inequalities are also noted with venture capitalists with the beneficiaries generally being white and male-dominated. Urban areas also benefit substantially more than rural areas.

In terms of venture capital funding for the CCI, public sources dominate. There are substantial differences in the magnitude of the contributions from the private sector. The main types of venture capital support and financial instruments discernible in the literature are public financing, venture philanthropy, tax incentives, loans, guarantee schemes, creative vouchers, equity finance, joint ventures and in-kind/ non-monetary support. In the digital era, crowdfunding is emerging as a major source of funding which poses opportunities (such as democratising the commercialisation of innovation and financing) and threats (such as the crowding out of smaller projects). Trademarks in the CCI have also increased. Venture capital investments in CCI infrastructural development are also noted together with the importance of hybridisation and public-private sector partnerships.

The main South African venture capital sources for funding for the CCI is the Arts and Culture Venture Capital Fund supported by the Department of Sports, Arts and Culture (DSAC). The fund is an important source of finance for start-up entities. Of concern is that the qualifying criteria to access the funding tends to support mainly events rather than businesses and there is preference for companies that have a track record rather than those that are start-ups. Additionally, Business and Arts South Africa (BASA) is a major organisation in providing business support to the arts and cultural sector. The private sector (especially banks) also provides venture capital funding.

Key recommendations include developing a monitoring and evaluation system to track venture capital investments and the impacts thereof, as well as maintain a database. Future research should also examine the rates of loan repayments. The focus of venture capital should be on business development rather than supporting specific events or activities. Sector specific tailor-made solutions for access to finance for businesses and entrepreneurs in CCI need to be developed to accommodate the diversity in the sector. The ‘ladder of growth’ approach should also be considered. Private-public partnership needs to be strengthened and public financing reduced. Tax and other incentives should also be considered. Investments in training, especially focusing on business aspects and entrepreneurship is critical.

#REPORT: THE DEVELOPMENT OF A SOUTH AFRICAN CULTURAL EXPORT STRATEGY

The purpose of this policy research report was to explore the available policy options pertaining to the development of a South African Cultural Export Strategy with the specific objectives being to define the current policy and legislative environment pertaining to the export of cultural products; identify available strategic options pertaining to the development of a Cultural Export Strategy, and propose an Impact Statement for the Proposed Cultural Export Strategy.

The report shows that South Africa has a rich and diverse cultural heritage and has produced many gifted artists. Culture, besides its immense non-material significance, is a valuable economic asset and can be exploited to the benefit of all South Africans. Many artists have become internationally successful and contribute to South Africa’s export earnings. South Africa’s exports are not meeting the targets set out in South Africa’s strategic plans and clearly it is imperative that exports, including the export of CCIs, must increase.

Global trade in the CCI is growing rapidly. The global market for creative goods more than doubled between 2002 and 2015. South Africa’s trade is very small relative to the total CCI trade and there is potential to increase. Trade in general contributes to economic growth and development, while the trade in CCIs is also linked to economic development but is at the nexus between creativity and globalisation. Trade in the CCIs will also project a positive international image of South Africa that could encourage investment in other sectors of the economy. 

While the export promotion of CCIs is important, it is probably more important to ensure that none of South Africa’s heritage is lost while promoting exports. Unique heritage artefacts should be retained in South Africa. These unique heritage artefacts and important heritage sites should be used to attract both domestic and international cultural tourists. Although cultural tourism is not a traditional export, it is a service export and should also be promoted. 

International Best Practice points out that it is important to recognise that enterprises themselves are responsible for developing their own businesses and exporting and that government can only play a facilitating role. 

South Africa has a number of strategies, policies, institutions and instruments that are focused on promoting exports in general. Some of these institutions are directed at specific sectors, while other target geographic areas. This report identifies these and indicates where and how a South African CCI export strategy can use these without duplicating or developing new strategies policies institutions and instruments. 

The focus should be on the retention and growth of existing CCI exporters. This is the most efficient route to growing exports, since these categories of exporters already have the necessary experience and capacity to export. However, it is also important to grow the export base and to develop new exporters. 

Export Councils are already a factor South Africa’s export promotion landscape and CCI Export Councils should be established to implement a range of support measures that will encourage exporters and facilitate exporting. Export Councils together with The Department of Sport, Arts and Culture (DSAC) and other stakeholders can facilitate the implementation of online assessment tools.  These assessment tools should include the presentation of export awareness workshops, develop and undertake various forms of export training, develop a CCI export website, make export publications, pamphlets and other literature available to exporters, organise and host webinars, recognise export achievement and present export awards, provide input into South Africa’s trade policy by highlighting  issues faced by the CCI exporters to include trade promotion activities together with cultural diplomacy in general and Cultural Seasons in particular. These could include trade missions and exhibitions. 

A database of CCI manufacturers and service providers which will also indicate those enterprises that are able to export is also very necessary. 

Tools, including the exporter assessment tools, such as the market prioritisation (the gravity model) should be developed by the South African Cultural Observatory and made available in the same way that the “Events Impact Calculator” is made available.