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Corporates are contributing to development by incorporating small and medium-sized businesses in their supply chains

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In 2014, SMEs made up just 60% of total employment in SA compared to a global average of 77%, according to the Financial Mail. And while the NDP relies on SMEs to create 90% of the 11 million new jobs government wants to see created by 2030, up to 76% of those small businesses failed during their first two years of operation, despite various government support programmes and funding initiatives.

Seen as a key solution to prevailing poverty and unemployment (besides being a legislative imperative), big business SA is making significant strides in the training and mentoring of entrepreneurs, with the view of including them in the supply chains of corporates and large businesses.

Multinationals such as Woolworths, Massmart, Murray & Roberts (M&R) and Anglo American – to name but a few – are training and developing black-owned SMEs so that they can be absorbed in the supply chains of big business in a long-term and sustainable way.

M&R says that due to the depressed economic activity in local operations, its enterprise development budget across the group shrunk somewhat this year to R44.5 million from almost R79 million in 2015. However, preferential procurement spend from black-owned suppliers as a percentage of total procurement spend increased to 97.7% from 91.2% last year.

‘This is well above the Construction Sector Charter’s target of 70%,’ according to Ed Jardim, M&R group investor and media executive.

‘Two black-owned entrepreneurs that received training and assistance are Letsatsi Civil Construction in Polokwane in the Limpopo province and Taucon Civils.

‘By the end of 2016, Letsatsi will be CIDB [Construction Industry Development Board] Level 7 due to the civil construction project with a large construction company in KwaZulu-Natal.

‘Taucon Civils is now a CIDB Level 6 company providing contracting services to some of the big clients such as Afrox; ACSA; Akulu Marchon [Chemserve]; Foskor and M&R,’ says Jardim, adding that Taucon Civils was started by Sharm Nayiager, a civil engineering bursary student who left M&R in 2006 to start his own company.

Supplier development activities include the procurement of services from SMMEs, early payment to these suppliers, preferential credit terms and administration support for certain contractors, suppliers and clients.

Annie McWalter, CEO of the Hope Factory, an entrepreneurial support and development company and part of the South African Institute of Chartered Accountants’ (SAICA) network for economic transformation, says more than 1 500 individuals and at least 750 businesses have been assisted.

‘The programme has three main elements: entrepreneurial development, which focuses on the right mindset and the psychological side of running your own business; business skills transfer that happens through a training and mentorship programme; and assistance to SMEs to become financially compliant.’

McWalter says the doors are open to black entrepreneurs to take advantage of access to SAICA’s significant network of tax, financial and company experts.

‘It’s critical that small businesses become fully compliant with the legal requirements that apply to their businesses of, for instance, the new Companies Act and Tax Act. SMEs need to become legally compliant before they can qualify for funding, and these are areas in which the Hope Factory and SAICA are able to assist them greatly.’

Although the Hope Factory doesn’t provide direct funding, it runs an annual ‘funding exhibition’ where the National Empowerment Fund, Business Partners Limited and other funders source suitable entrepreneurs to invest in.

Anglo American and other large SA mining companies all have enterprise development and local procurement programmes that support SMEs, often based in communities around their operations.

In the case of Anglo, the multinational’s Zimele enterprise development fund has been a catalyst during the past 26 years for developing emerging black businesses around mining communities, and helping these SMEs to become sustainable.

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Zimele MD Hlonela Lupuwana says the model – with six different in-house and partnership funds – combines financial support in the form of finance and subsidised loans to SMEs with mentorship, businesses and implementation support, and access to capital and markets so that these small businesses are able to grow and create jobs.

‘In 2015, Zimele Funds concluded 403 transactions and provided R308 million in funding to 321 businesses that collectively employ 8 653 people. This generated turnover of an impressive R2.5 billion,’ she says.

‘Our community fund is the most significant provider of funding and generator of jobs.’

Lupuwana adds that in 2015, the miner began focusing more intensely on mentorship and guidance, as well as market research and assessment.

‘A thorough pre-investment process greatly reduces the number of failures post-investment. Quality jobs tend to be created over a long period of time. The agriculture sector can also create large-scale job opportunities with lower capital requirements.’ She says that last year, Zimele launched its post-investment management function, which is actively involved in funded enterprises.

‘A properly structured post-investment management process can timeously identify small businesses that are struggling, and proactively ensure remedial and corrective action – thereby increasing recovery and sustainability rates of SMEs.’

Another form of support to SMEs is through Anglo American’s supply chain management and preferential procurement – a requirement in terms of the law and the Mining Charter.

The multinational ensures ever-increasing levels of securing goods and services from BEE-compliant businesses and SMEs, with the view of forging partnerships with local entrepreneurs in order to optimise opportunities of integrating businesses, particularly local SMEs.

In the retail sector, Woolworths says it has grown many of its suppliers from very small businesses into large providers of products. The Woolworths enterprise and supplier development programme is no different other than its objective to support black-owned and black women-owned enterprises in its greater supply chain, including primary and secondary suppliers. The programme seeks to remove the barriers of entry into the Woolworths supply chain for these SMEs.

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According to the retailer, over the past four years, Woolworths had an accumulated procurement spend of R1.1 billion with enterprise and supplier development [ESD] beneficiaries.

It has disbursed R50.6 million in loans as financial support for some enterprises over and above other non-monetary support, such as cash-flow management, coaching and mentoring. In addition, the programme has created more than 1 000 sustainable jobs and positively impacted 3 232 people in different families and communities.

‘Our ESD programme includes agriculture, non-trade procurement, logistics, IT, manufacturing, agriprocessing, clothing suppliers and many more.

‘We engage with these businesses on their productivity, business growth, governance and operational sustainability of their enterprises in order for them to become sustainable businesses in their own right.’

Woolworths considers small enterprises and emerging farmers crucial to the sustainability of its supply chains as they offer the opportunity to introduce innovative products, such as indigenous or organic eggs. They also extend and diversify the local supplier footprint, minimise trunking costs and reduce the company’s carbon footprint.

According to David North, Pick n Pay (PnP) executive of corporate affairs and group strategy, the company’s enterprise development fund has helped many businesses get off the ground to become fully-fledged manufacturers and suppliers.

‘We are very committed to the development of our small suppliers,’ he says.

PnP’s ESD programme helps selected businesses to enter the retail market by providing mentorship, guidance and development support. It aims to improve the competence and ability of SMEs to compete on an equal footing with established suppliers, and empower and build entrepreneurs as well as SMEs by providing them with development support.

‘We are mindful of the importance that small businesses apply to maintaining cash flow. We do therefore ensure that we pay in a timely manner,’ says North. PnP also promotes all aspects of small supplier development within the company.

By Louise Brougham-Cook
Illustration: Mr.Xerty © www.nomastaprod.com