Enterprise development could serve as a remedy to ease and even heal some of SA’s economic maladies


In an attempt to boost investor confidence and prevent a credit downgrade, SA’s private sector launched the R1.5 billion SA SME Fund in September – only days before the international ratings agency Moody’s was due to arrive in the country.

According to a media statement released on behalf of the fund: ‘It’s of national importance to work together to stimulate SME development.’ This aims to fuel economic growth through investing in high-potential SMEs.

In excess of 70% of the Top 40 companies on the JSE – in addition to many listed and unlisted ones – are contributing to the seed capital. Government has pledged to match the fund in due course.

JSE CEO Nicky Newton-King is among more than 40 CEOs who represent organisations – including heavyweights such as Anglo American Platinum, FirstRand, Investec, MTN, Old Mutual, Remgro, Richemont, Sasol, Steinhoff, Telkom and Vodacom – that have already committed to the SME Fund.

‘SMEs are of the few entities that can create jobs at the quantum required,’ said Discovery CEO Adrian Gore, who led the workstream that set up the fund. ‘Yet almost 75% of small businesses fail. This fund will not only provide high-potential entrepreneurs and SMEs with access to capital, but it will also seek to connect entrepreneurs to a network of critical business and technical skills required to scale their businesses.’

Finance Minister Pravin Gordhan, who at the beginning of the year challenged corporate SA to find solutions for the country’s ailing economy, has likened SMEs to ‘small green shoots’ growing in different parts of the economy. He said: ‘If we nurture those shoots in the right kind of way and create the right kind of ecosystems, we can certainly get back to 2% or 3% growth over the next two or three years.’

After consulting various stakeholders, three main obstacles for SMEs were identified: an early-stage funding gap due to the strong risk aversion of traditional market players to finance SMEs in the scale-up phase; lack of access to high-quality, executive-level mentors; and working capital constraints for SMEs across all sizes and sectors, which is frequently caused by late payments.

The SME Fund intends to address these market failures by investing through selected fund managers rather than disbursing any money directly to SMEs. This strategy has already reaped rewards for the Association for Savings and Investment South Africa (ASISA) – an industry body representing the majority of the country’s financial institutions except for banks – which has established the Enterprise and Supplier Development (ESD) Fund, specifically for SMEs.

‘We wisely decided to appoint a professional enterprise and supplier development firm to manage our fund,’ says Leon Campher, ASISA CEO. ‘It’s clear that, historically, enterprise development didn’t work because companies simply dished out money to small enterprises and expected them to succeed.

‘While entrepreneurs may be passionate about what they do, they are not necessarily equipped to run a business. Therefore companies need to offer a combined package to educate and mentor the entrepreneur before investing any money and continue to provide business development support after investing,’ he says.

Thanks to a $1 million grant from the US Agency for International Development, ASISA will be able to expand its post-investment support. Members initially envisaged a fund of about R50 million to R70 million, but in its three years of existence this number has multiplied to about R280 million currently. Campher says: ‘With firm commitments coming in, it will probably be close to R500 million within the next six months. We have exceeded our expectations nearly tenfold.’

This enables the ESD Fund to work with approximately 400 SMEs in the member supply chains, ranging from start-ups to established businesses.

One example is a small Cape Flats family business that started out collecting and recycling waste for Sanlam. The ESD Fund provided financial assistance and spent a lot of time ‘holding hands’ and mentoring – helping the small company to buy new trucks and equipment while successfully integrating them into corporate supply chains.

Today Waste Want not only employs 29 additional staff members, who were rehabilitated from homeless shelters, but it also has a broader vision regarding people, planet and profit.

‘We strive to grow our business to create a broader social and environmental impact,’ says Lydia Jardine, director of Waste Want. ‘There are communities who need jobs, and because our business is low skilled and high volume, we can employ people from night shelters. We also collaborate with schools to encourage recycling.’

On the highly skilled end of the SME scale, the ESD Fund has assisted a digital innovation agency, Liquid Thought, which is now able to provide services to several institutions within the financial sector. According to Campher: ‘Our challenge is to move companies out of the SME space, which is defined as having an annual turnover of R50 million or less.


‘If we’re doing our job right, a fair proportion of SMEs should no longer qualify for enterprise development. We will then hand them over to ASISA members who run private equity ventures and can take them to the next level,’ he says.

The SMEs may range from labour-intensive, low-skills companies to sophisticated high-tech firms, but they all have one thing in common: they are small businesses in need of help. Without assistance, the business failure rate in SA is high.

Part of the pain of entrepreneurship is failing and picking yourself up again. Richard Chapman, regional head of ESD specialists Edge Growth, says: ‘Although South Africa has world-class entrepreneurs, owning a business is often difficult and lonely for entrepreneurs who have been forced into this space to support their families. That’s why the mentorship aspect is so important to provide skills to a sector that has been historically neglected, yet most needed to create economic growth.’

He adds that the quality of mentorship and business support is key as inexperienced practitioners are increasingly appearing on the ESD market. ‘The danger is that unqualified advice can be damaging and potentially fatal to an entrepreneur’s business.’ Chapman suggests therefore that as the market matures, an accreditation process for ESD service providers could ensure quality control.


As the understanding of enterprise development is growing, the corporate focus is also shifting. Where a few years ago companies tended to tick boxes to earn their BEE points, many are now seeing the bigger picture. ‘Today corporates rightly want to ensure a return on their investment and strategic alignment of SMEs to their supply chain,’ says Chapman.

‘This is what we’re doing when we manage the ESD funds: we create a framework for corporates to use their capital in a way that creates shared value in their supply chain, to generate a return on their investment and produce a sustainable entrepreneur at the end of the day. We have a more educated market but still a fair way to go.’

Bashir Khan, CEO of the Business Lab, a provider of ESD solutions with headquarters in Sandton, says: ‘Essentially enterprise supplier development is a win-win-win for all: small business, corporates and the South African economy. It provides fantastic opportunities for an organisation by growing the number of empowered SMEs within its supply chain.

‘Sourcing and selecting of the right SME, as well as ensuring the sustainability of these SMEs to driving a seamless business fit, are just some of our capabilities.’

He explains that from a compliance point of view, corporates benefit from earning points on their BEE scorecard. ‘ESD is also a priority element and the largest contributor in terms of points on the scorecard, so that the benefits to corporates are direct and value-adding.’

Beyond this, small businesses with the ability to be ‘nimble and agile’ may help the corporate supply chain to become more agile and responsive to change, says Khan. He adds: ‘The reality is that many SMEs have not entered the corporate supply chain and this is where they can gain significant traction to take their businesses to a new level.’

Much of the development in this space is driven by the private sector, as the newly launched SA SME Fund shows. ‘The sector is starting to mature’, says Chapman. ‘It’s attracting buy-in from multiple industries and from JSE-listed competitors that are working together towards an economic solution for the country as a whole. This is one of the few areas of the National Development Plan that came to life in an exciting way, proving that it’s not all doom and gloom.’

So while SME development may not be the magic potion to fixing SA’s economic woes overnight, it could turn out to be more like an antibiotic – able to cure the ailment over time, if administered correctly.

By Silke Colquhoun
Image: Gallo/Getty Images