AGE OF OPPORTUNITY - JSE MAGAZINE

AGE OF OPPORTUNITY

The post-COVID-19 recovery will depend on corporates’ ability to support SMEs and continue building an ecosystem for companies of all sizes to thrive

AGE OF OPPORTUNITY

Learning from mistakes can be a powerful business lesson and sometimes even accelerate positive change. In a recent example, an advertising failure involving the SA pharmacy, health and beauty retailer Clicks and a hair product by Unilever – which is, incidentally, considered a global leader in social and environmental sustainability but in this case provided offensive advertising material that was published on the retailer’s digital platforms – has been turned around to boost the small-business ecosystem.

After rethinking how to better address the diversity of SA’s beauty market, Clicks announced it would support more local brands and increase its procurement spend on SMEs. The company, which spent R26.7 billion on suppliers in 2019, now also intends to involve its supplier base to mentor SMEs across its value chains. Additionally, the Department of Small Business Development said it would assist the company in focusing on black-owned SMEs, especially those owned by women, youth and people with disabilities, to build an inclusive economy.

Big business and government have significant influence over the success of small businesses, which are the lifeblood of most economies as they create jobs and tend to be more innovative, agile and tuned into the unique local requirements than their large counterparts. In SA, the role of corporates in stimulating and supporting SMEs is particularly important, seeing that small business growth and its contribution to job creation is lagging behind other countries.

To get a more accurate picture, the Small Business Institute (SBI) is conducting a comprehensive SME baseline study. ‘Contrary to inaccurate statistics that continue to be quoted by various organisations, we learned that there are just 263 224 SMEs employing 3.9 million people, while large businesses and government employ nearly 10 million,’ says John Dludlu, CEO of the SBI. ‘This ratio is unusual in the world, where some 60% to 70% of jobs are provided by small firms, not the 28% in South Africa where employment is so desperately needed.’

The additional COVID-19-related economic shocks have disproportionally affected SMEs, which, according to the SBI, make up 98.5% of all businesses in the country. Many have already had to close permanently, and a recent survey by SME.Africa and Sasfin revealed, in August 2020, that almost half of SME respondents were ‘distressed’ (severely impacted by COVID-19) and a further 41% were ‘coping’ (limited impact).

The pandemic has also had serious implications for large corporations and their ability to support small business. The level of spend is generally dependent on the corporate’s net profit, at least when it comes to the enterprise and supplier development (ESD) requirements laid out in the BEE codes.

As the priority element on the BEE scorecard, ESD incorporates the sub-elements of enterprise development, supplier development, and preferential procurement. For a small business, being part of such an ESD programme typically means access to finance, business training, mentorship and guaranteed off-take, which can serve as a lifeline.

However, corporates that are themselves struggling in the current crisis have to prioritise ‘where to take the pain’, says Nick Rockey, MD of corporate responsibility consultancy Trialogue. ‘Where do you cut back when your own revenue has shrunk? While the right thing to do would be to protect your suppliers and your ESD programmes, companies in some hard-hit industries, such as tourism and hospitality, may have no choice but to cut their ESD.

‘There’s a lot of ESD activity in South Africa, and it’s not all coming to an end,’ he adds. ‘Our sense is that there will be some pull-back but that companies are not reacting immediately. We expect a bit of a lag as, over time, they will have to bring their expenditure back in line with their profits.’ SMEs that are core to the supply chain of a large company and therefore crucial to business continuity, will fare better than those that operate outside the chain. ‘The further you move out of the value chain, the more discretionary it becomes for organisations to support those small businesses,’ says Rockey.

Even before the coronavirus outbreak, small businesses were struggling largely because of late payments for their services and goods. The SBI has called for big business and government to take less than 30 days to pay the small businesses in their supply chains. In July 2020, Mxolisi Mgojo, CEO of Exxaro, supported this request, stating that the diversified mining company paid such invoices within seven days of submission.

‘I urge all my counterparts to pay SMEs first. If all of us did that the need for economic relief by SMEs wouldn’t be as high and pressing as it is now,’ he said. ‘We see SMEs as being more important than just links in the supply chain, but as future big businesses.’

While liquidity is a critical factor for the success of any small business, many also require non-financial support to survive. To this end, the Absa Group offers emerging SMEs within corporate and government value chains access to innovative finance without the conventional collateral, and supports some of these businesses with mentoring and incubation programmes to nurture the necessary business and financial skills. ‘In addition, our own inclusive procurement practices and supply-chain development programmes provide entrepreneurs with access to business opportunities, addressing the challenges they have, such as being unable to access markets,’ says Kgalaletso Tlhoaele, head of enterprise development at Absa. ‘In 2019 alone, we made available about R234 million in funding specifically for the benefit of SMMEs in South Africa that supply our organisation with goods and services.’

Absa has provided its corporate clients with bespoke supplier development (SD) cashflow-based financing solutions that support the growth and sustainability of corporate SD beneficiaries. The group also offers access to markets for SMEs into various corporate supply chains through strategic partnerships such as Smart Procurement World.

‘It’s Absa’s view that corporate supply chains offer the biggest opportunity of transforming the economic landscape and bring about inclusive growth,’ says Tlhoaele. ‘It is in this context that Absa has made a concerted effort to provide strategic enablers and partnerships with corporates and public sector entities to increase the participation of SMEs in their supply chains.’

Whereas entrepreneurs are passionate people with a clear vision of what they want to achieve, many simply don’t have the expertise they need to grow their business, according to Mishinga Seyuba Kombo, head of enterprise and supplier development at Pick n Pay (PnP). To provide this expertise, the retailer launched a mentorship app that connects the small suppliers in its ESD programme with experts across its business, assisting with anything from procurement, merchandising, compliance, supply chain, financial management, to marketing and human resources. The app is only formalising the mentorship that has already been practised informally.

‘Many experts in our business have been helping us empower small suppliers to get them ready to list their products or services with us and other retailers,’ says Seyuba Kombo, highlighting the story of Anna Phosa, owner of Dreamland Piggery, who, with the mentorship of PnP’s head of butchery, was able to grow her business from supplying three pigs a week to more than 300. Kombo explains that Phosa together with another ‘incredible entrepreneur’ – Sibusiso Tshabalala, owner of braai-briquette manufacturer Berry Hill Trading – were part of the original entrepreneurs who started in PnP’s small-business incubator and are now large commercial participants in the wholesale and retail sector.

Another retailer, Woolworths, has taken its ESD programme a step further by effecting systemic change that reaches well beyond its supply chain. ‘Our Farming for the Future programme, now in its 10th year, has proven to be one of the areas in our business where we have made one of the most positive environmental impacts in South Africa,’ says Feroz Koor, head of sustainability at Woolworths. ‘It’s a systems approach to farming, so every aspect of the farming operation and its environment – the immediate and surrounding area – is considered and addressed. The programme has grown beyond our supplier base and into the surrounding communities via our Breede and Crocodile River water stewardship programmes working in collaboration with WWF SA and various stakeholders in the rivers’ catchment areas.

‘The success of the Breede project has not just cleaned up and unlocked water resources but also created valuable jobs and has resulted in a model that WWF SA is using working with other corporates in water-stressed areas across South Africa.’

This underlines that small business development is not a standalone compliance exercise but, when approached holistically with a long-term view, can be used to build successful local businesses that create jobs, help corporates add value to their own supply chain while meeting BEE targets, and make a broader contribution to SA’s sustainability.

By Silke Colquhoun
Images: Gallo/Getty images