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A Greater Partnership Between Corporates And The Government Is Needed To Design The Right Funding For Small Businesses

A recent webinar on supplier development, hosted by Cova Advisory, advised that South Africa has one of the highest failure rates of small enterprises in the world, with five out of seven start-ups failing within their first year. 

The webinar included participants from corporate, government and the professional services sector. Participants concluded that greater partnership between the public and private sectors is needed to ensure that support for small, medium and micro-enterprises (SMMEs) is relevant, practical and easily accessible.

Cova Advisory Director Tumelo Chipfupa stressed the crucial importance of SMMEs in job creation, due to their higher capacity to absorb labour, with a lower average capital cost per job created.

“SMMEs play a big role in addressing the major challenges of unemployment and inequality in our country, but we are not doing well,” he said.

“The failure rate in South Africa is higher than many other places in the world, with access to finance being a major stumbling block. Only 6% of SMMEs report they have received government support.”

Tanya Fouche, the Head of Business Development at Aurik Enterprise Development, who also participated in the webinar, suggested that government “is under a great deal of pressure to create jobs and is trying to use enterprise and supplier development programmes to drive start-up businesses.”

“However, we are seeing that working with existing businesses and driving them into a more sustainable growth model creates more jobs and a greater contribution to the economy.

“Currently the greatest gap for companies in reaching their preferential procurement points is in procurement with black, women-owned businesses, as well as the designated groups such as youth and the disabled. There seems to be a great shortage of businesses in this space and so we are seeing a lot of start-up business’ programmes designed to support the inception of these businesses.”

Fungai Blake from the Incentives and Finance Raising Team at Cova Advisory stressed that there is government support available from the Department of Trade, Industry and Competition (DTIC) to help finance supplier development, through its Black Industrialist support scheme. Further, added support can be seen through the DTIC’s Strategic Partnership Programme (SPP), which encourages large private sector enterprises to partner with the government to support, nurture and develop small and medium enterprises (SMEs).

“These SMEs would lie within the corporate’s supply chain,” she said. “There is a focus on the development of suppliers which are involved in manufacturing, agroprocessing, mineral beneficiation, and manufacturing-related services sectors of the economy such as logistics and distribution. “This SPP incentive supports the manufacturing supply chain and related services which are deemed strategic by the DTIC.”

She noted that there is a 50:50 co-funding model for manufacturing projects, and 70:30 for projects that are not in the manufacturing sector, but which support the manufacturing supply chain and are deemed strategic by the DTIC. This means a government grant funds a share of each project, with the company securing the balance through loan finance or their own equity.

“As most SMMEs have been negatively affected by COVID-19, and some are on the brink of closure, big corporates can use the SPP grant to strengthen support for SMMEs via their supplier development programmes,” she said.

Litha Kutta, the Enterprise and Supplier Development Director at Tiger Brands, said that from his experience, the criteria are not well designed for black-owned small businesses to access support funds, or for corporates to assist with this.

“Funding is critical to unlock the participation of black enterprises into the supply chain, value chain and distribution chain of Tiger Brands. A lack of funding and financial inclusion for black-owned enterprises and the non-availability of funding at scale in the industry has slowed down our ability to advance our supply chain transformation.”

“Government funding is incompatible with business’ time-frames,” he warned. There is a mismatch between what the government is offering and what the private sector needs. “The red tape to get the funds approved is cumbersome, and it is an additional administrative burden to get the funds to flow into projects on time.”

Don Mashele of the Small Enterprise Finance Agency (SEFA), a division of the Small Business department, insisted support is out there. “SEFA has a number of support programmes for small businesses – with blended finance, which is a combination of grant funding and loan funding. It reduces the cost of lending and makes it easier for businesses to access funding.

“Our focus is on small black-owned businesses; we need to build businesses that corporates can buy from. There is a real shortage of businesses owned by women, youth and people with disabilities.”

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