DEEP IMPACT - JSE MAGAZINE

DEEP IMPACT

Is SA leveraging the tens of billions of rands being invested in enterprise development in the best possible way?

DEEP IMPACT

As the amended BBBEE Codes of Good Practice come into effect, there will be a far greater focus on enterprise development given the changes in how points are awarded. Enterprise and supplier development now includes procurement (the weighting of 50 points out of 100 remains the same).

Some estimates put this enterprise development spend at R26 billion a year. Assuming that only half of the 100 largest JSE-listed companies – along with state-owned behemoths Eskom and Transnet – make the full contributions of 3% of profit after tax (now, under the new codes, at 1% for enterprise development and 2% for supplier development), the total would undoubtedly exceed R10 billion. Transnet alone spent R336.6 million on enterprise development in its 2015 financial year, which it says equates to 6.3% of net profit after taxation.

So, there’s a lot of money being spent. But are there tangible results? Any company investing tens or hundreds of millions of rands a year would argue – probably strongly and reasonably – that this is making an impact. However, there may be other ways of achieving greater results for the same spend.

What if large enterprises worked together to group their investment and interventions into sector- or region-specific clusters? Typical service providers such as cleaning, security, IT support and catering are obvious candidates.

Grouping investment and support could easily make the difference between a marginal microenterprise and a thriving small business. This would require enterprises to set up councils or foundations to actually enable this. The not-for-profit Enterprise Development Council of South Africa looks to set standards at a national level, but the kinds of enabling activities suggested here would have to be far more localised and specific.

Co-operatives could be an alternative solution. Of course, there is a balance to be struck here between broad empowerment and helping enterprises scale up. There is a massive difference between nurturing an emerging supplier and supporting a R1 million a year business, and one at the R10 million level. More jobs, more downstream economic activity (these enterprises would have inputs and suppliers too) and more empowerment.

The new codes incentivise this kind of activity, with a bonus point in the enterprise and supplier development scorecard for one or more direct jobs created. Take it a step further and help entrepreneurs establish or grow businesses to provide professional support to suppliers. These would include financial and procurement support, tax (PAYE and VAT) advice, regulatory help as well as training.

Transnet’s Enterprise Development Hub is a fantastic but isolated example of this kind of intervention, and it uses strategic partners to provide this access to small businesses at the pilot at its Carlton Centre head office.

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This professional support could ensure that other government incentives, such as the Jobs Fund and Employment Tax Incentive (the so-called youth wage subsidy) are utilised (where applicable) and amplified. Support from entities such as the Small Enterprise Development Agency and National Youth Development Agency could also be leveraged.

Financing itself could be an avenue for targeted and co-ordinated support. Help, as well as actual financing, could be provided in a structured way. This would require the establishment of some sort of (funded) entity to actually do this. Remember, the country’s large commercial banks have divisions that specialise in these services.

This might prove to not only be more efficient, but also more effective. It would be a good place in any respect to start the debate.

By Hilton Tarrant
Illustration Ricardo Lategan