Connect with us

Business Landscape

SMEs Meeting Corporate Demand

Government has the power to create a demand for enterprise development.

Mannie Hirsch

Published

on

016

Every entrepreneur knows that if there is no demand for his product or service, his business has no chance of survival. And every entrepreneur who applies for funding soon finds out that the collateral that banks most like to see is evidence of existing orders. So why can’t government apply this basic principle in its policies for job creation and enterprise development?

Here is a simple analogy of the relationship between supply and demand that illustrates where our SME policies are failing: Government decides that building more mills to grind wheat is a good way of creating jobs. So it provides a plethora of policies to support the building of flour mills – incentives, skills development, industry zones, business support centres, guaranteed loans, tax relief, red tape reduction, simpler compliance and regulation – the list goes on and on.

But unless the market needs more wheat, there is no point in building another mill. All that is achieved is that the mill owners are set up for failure and the hopes of creating jobs at the mill are dashed.

The scary stats

No wonder our track record for small business growth is so dismal. In South Africa 56% of our new businesses close their doors within the first 12 months; by year three, 72% have gone under; and after five years, only 7% will still be going. How can we possibly create enough jobs and encourage significant black ownership of new businesses against these odds?

It is hoped that Economic Development Minister Ebrahim Patel will bear this in mind when the details for implementing his New Growth Path are thrashed out. A vision of 5 million new jobs by 2020 is inspiring, but this target has no hope of being achieved unless there is a demand for what these additional 5 million people can produce or deliver.

It is encouraging that Minister Patel declared in his framework document on the New Growth Path (23 November 2010) that government intends to “mobilise domestic investment around activities that can create sustainable employment.”

I would recommend that government contributes significantly to that investment by taking the lead in generating demand. If government chooses to source its supplies and services from local communities, enters into contracts with local suppliers, puts its orders on the table, and then abides by the terms of those contracts, the rest will follow.

With guaranteed orders in place, funding can be raised, investors can be found, and entrepreneurship can thrive.

Identifying opportunities

Indeed, The Gestalt Group has developed a local economic development model that can support this approach.

We identify suitable opportunities for establishing community-owned projects; we link them to what government needs; we raise funding from companies that want to invest in enterprise development as part of their B-BBEE commitments; we identify partners for these ventures; we bring in the support that is needed to get the businesses up and running and we provide a franchised, centralised support system for each venture.

One such scheme that is already producing results is the establishment of local bakeries that have acquired contracts to supply bread to government institutions.

The bakeries are owned by community groups, they employ people from their communities, they receive sound business support from Gestalt to help them to become sustainable, government is the procurer who has created the demand for their products, they are able to undercut the prices charged by the big bakery monopolies, and they are likely to be instrumental in driving down the price of bread, which brings benefit to all South Africans.

Furthermore, the scheme has brought equitable ownership to a slice of the bakery industry and has facilitated economic empowerment in areas where it is most needed.

In an economy where 40% of the national income goes to 10% of the population and where 10% of the population controls 90% of the economy, such new community ventures are key to changing the way money flows in South Africa.

Focusing on demand

If our policies for enterprise development shift from a focus on supply to a focus on demand, the enterprises and new jobs will follow as a natural result of that demand.

This mind shift is critical if we are to break the macro-level impasse between government and business – while government wants business to create jobs, business is resisting because it doesn’t want to create more jobs, for all sorts of reasons.

While business has proved to be very willing to come to the party in many ways, including through broad-based enterprise development investment, it has made it clear that it can’t be expected to create jobs that it neither needs nor wants.

So it’s time for a fresh approach to strategic intervention from government. Since government is arguably the biggest procurer in our country, it has the power to create new demand and stimulate new chains of supply.

But it has to break down its own needs into opportunities for small contractors, it has to put its orders on the table, and it has to honour its contractual agreements.

This is a simple vision for government to apply to the complexities of enterprise development – and it is this simple vision that can guide it towards achieving 5 million new jobs over the next 10 years and reaching its targets for achieving economic growth and equitable economic empowerment for all.

Mannie Hirsch has consulted internationally on the development of emerging entrepreneurs. He founded The Gestalt Group in order to pave the way for emerging entrepreneurs to enter the mainstream of the South African economy. For more information, contact Mannie at mannie@gestaltconsult.com, on 011 781 7841 or visit www.gestaltconsult.com.

Advertisement
Comments

Business Landscape

How South African Small Businesses Owners Can Overcome Economic Uncertainty

Here are three things you can do to overcome these economic challenges.

Published

on

south-african-economic-uncertainty

South Africa’s entrepreneurs haven’t had it easy. The current political landscape coupled with global uncertainty has brought with it significant business instability.

This is evidenced in Xero’s 2017 State of SA Small Business Report which found that 68% of small businesses view economic instability as their number one challenge, while 38% are concerned about their cash flow.

Within the small business community, the report also highlights a growing frustration with the government’s lack of support to help keep them afloat. Despite being set up to do just that, 89% of small businesses don’t feel that The Department of Small Business provides the right support.

This lack of support extends across government: 48% of entrepreneurs would like to see more funding, 44% want less red tape, 43% call for more tax breaks, and 36% want better access to finance. While these requests are perfectly reasonable, they’ll only take effect if the government gives them the go-ahead.

Implementing more measures to support small businesses will take time. This means 2018 is going to be just as challenging as 2017 – if not more so.

Related: How Women Entrepreneurs Can Change the SA Business Landscape

Here are three things you can do to overcome these economic challenges.

1Be agile

Smaller businesses are typically more agile than their larger competitors. This is a huge advantage when navigating an unpredictable market. Macro-economic challenges are, for the most part, beyond your control. Rather than try and ‘fix’ the situation, move with the market and adapt to its changing nature.

The best way to maintain customer relevancy is to review your offer regularly and look for ways to improve it. You could consider lowering your prices – as long as it doesn’t upset the books. Or think about investing money back into the business to yield greater returns.

There’s no one-size-fits all approach, so just make sure you do what is right for your business. Part of this is ensuring you stay fresh in the eyes of your customers by continuing to respond to their evolving needs.

2Invest in new technologies

Investing in the most up-to-date technology will pay off in the long run. For South Africa’s small businesses, technology is only growing in importance: where 19% said it was essential last year, that number has increased to 49% in 2017.

Cloud accounting software, for example, can help you understand your company finances and track budgetary health in real-time. Knowing exactly where your funds are and how they’re being allocated, enables a much faster response time – this is critical during unstable economic times.

Technology can also help you build a more competitive business by reducing wasteful expenses, automating time-consuming data entry tasks and streamlining processes for greater efficiency.

The more knowledge you have, the easier it is to put measures in place that will enhance your company’s operations.

Related: 7 Signs You Have A Positioning Problem [And Why Familiarity Kills Businesses]

3Deliver superior customer service

Purse strings might get tightened during tough economic times, but there will always be demand for certain products. Ensure you give your customers a superior user experience when they engage with you, and they’ll return.

It’s not always possible to compete on price. Bigger, more established companies generally have the capital reserves to undercut their rivals. But, small businesses can always compete on value. If you can offer a superior customer service, then you’ll receive customer loyalty in return – this is priceless in a volatile economy.

The past year has been incredibly challenging – and it’s unlikely to get easier as we move into 2018. But, the most successful entrepreneurs don’t let the economy thwart their ambitions – they equip their business to weather any storm. The sooner you innovate and adapt your business, the better your chances of success.

Continue Reading

Business Landscape

SAB-Commissioned Research Shows SA Poised To Reap Entrepreneurship Rewards

Every country has both significant opportunities and challenges.

Published

on

south-african-entrepreneurship

Every country has both significant opportunities and challenges.  It is becoming increasingly evident that corporates have a big role to play in addressing both.

Companies, particularly large ones like The South African Breweries (SAB) with all its scale and resources, not only do they have a responsibility but a duty to invest in a better world for all.

We know that entrepreneurship can have a huge impact on the growth and development of countries. That is one of the main reasons SAB is backing entrepreneurs 100%. The level of their impact was reaffirmed by recently released research by the Global Entrepreneurship and Development Institute (GEDI).

Not only is the environment for entrepreneurship in South Africa more conducive to small business development than many had previously believed, it also places the country ahead of some of our partners in the Brazil, Russia, India, China and South Africa (BRICS) economies and several others.

Related: SAB Launches Entrepreneurship Campaign To Create 10 000 Jobs In SA

This is pretty significant, given that the South African government’s National Development Plan (NDP) envisages that 90% of jobs will be created in small and expanding firms and that by 2030, the output from these firms would have grown substantially.

The GEDI research indicates it is commonly believed that South Africa does not nurture small businesses. This is mainly because self-employment makes up a comparatively small share of the total, relative to other African countries where it dominates employment.

It is, however, interesting that the report found that high levels of total entrepreneurial activity correlate globally with lower GDP, prosperity and development, and vice versa. Once you scratch beneath the surface, this begins to make better sense.

In less developed economies, it is harder to grow a small business beyond a basic survivalist enterprise. That is often where the story ends: These businesses never grow, therefore, they never employ more than a handful of people each.

By contrast, South Africa has a number of high-growth and high-tech start-ups that have carved out a place among the top companies on the planet and one of the continent’s only two “unicorns”, private, venture-backed companies valued at $1 billion or more, in the form of Promasidor Holdings.

By looking at the entrepreneurship ecosystem rather than at individual entrepreneurs, the GEDI research found South Africa to be the leader on the Continent when it comes to entrepreneurial activity. Furthermore, the potential is enormous. So, once South African start-ups have weathered the initial turbulence that comes from establishing a small business, they have the ability to grow significantly and even potentially compete globally.

In a nutshell, South Africa performs better where it counts: in entrepreneurial aspirations, innovation, high growth, internationalisation and risk capital – the main pillars that lead to economic growth.

The good news is: We have the capability to cultivate world-class, high-growth, highly innovative businesses from scratch and push on to achieve global competitiveness. The unfortunate news is that we have bottlenecks in the system that make it very difficult for entrepreneurs – especially those from disadvantaged backgrounds – to get a start in the first place.

If entrepreneurship is a two-stage rocket, we are good at getting the ones that make it past stage one into orbit but too many fail to launch at all.

That is largely a function of our dual economy:  Poor education and skills, lack of social capital, limited access to risk finance, markets and knowledge networks. This leaves many aspirant entrepreneurs stranded at the idea phase, while a culture that prizes formal employment and shuns risk makes entrepreneurship a seemingly unattractive option.

All this is changing though.

South African flag

SA’s Broad-Based Black Economic Development (B-BBEE) legislation is designed to promote inclusion, encouraging big corporates to consider emerging suppliers for integration into their supply chains and stimulating investment in enterprise development, education and skills training, among others.

There is a huge pool of funding available, which, as we learn more about the bottlenecks in our entrepreneurship ecosystem, is being deployed more effectively.

Related: The Journey Of Entrepreneurship: How The Tough Get Going

At SAB, we have one of the longest-running entrepreneurship programmes in the country – SAB KickStart – which focuses on youth-owned businesses.

It complements the SAB Foundation, an independent trust that primarily also promotes entrepreneurship and social innovation. There are also recent additions, SAB Thrive, a black private equity fund set up by SAB to transform the company’s supplier base through acquisition, business development and fostering entrepreneurship, and SAB Accelerator, an incubator with the aim of growing SAB’s supply chain to be inclusive of black-owned, especially black women-owned businesses. And then there are the agriculture projects, where we are investing R610-million over five years to establish thriving barley, hops, maize and malt industries in South Africa to strengthen rural employment and job creation.

These initiatives, and our commitment to create 10 000 authentic, real and sustainable jobs through entrepreneurship within five years, demonstrate our desire to make a difference in society and our faith in the ability of entrepreneurship to drive growth and employment.

In fact, we commissioned the GEDI research because our daily interaction with emerging entrepreneurs led us to question the prevalent assumptions about the deficiencies in the system.

In the 23 years since the launch of SAB Kickstart, we have developed a deeper understanding of what it takes to propel small businesses past the launch phase. As such, we have refined our support systems to boost them to scale.

We have also built a multi-pronged programme to provide support, finance where required, mentorship and skills, access to markets and supply chains across the entire trajectory of a small business – from idea phase to developing the skills to manage a business, to achieving the scale, quality consistency and sustainability that a large corporate like SAB requires of its suppliers.

We have the capacity – and we have ramped up the budget – to significantly expand these programmes and with the introduction of SAB Thrive and Accelerator to complete the circle, but it is also about a change in approach.

Whereas we have concentrated, up to now, on the entrepreneur, in future we will focus on the job-creation potential of candidate businesses.   We have also changed the way we think about procurement to make inclusion a serious consideration when we choose our suppliers.

The GEDI research shows South Africa is an entrepreneurial leader in Sub-Saharan Africa and has made considerable progress in overcoming structural factors to produce some of the most innovative and successful enterprises on the Continent.

South Africa provides the institutional support necessary for high-growth businesses to emerge and thrive, while government policies work to close historical gaps. With the addition of targeted, co-ordinated policies to address remaining bottlenecks, the country is poised to achieve greater growth through entrepreneurship.

We can achieve far more if we work together, if we make small business development an area where corporates share data and lessons learnt, link suppliers into one another’s supply chains and work more closely with government to ease the regulatory burden for small businesses.

If we can bridge the divide between the thousands of entrepreneurs struggling in the early stages of business development and the dynamic environment at the apex of the system, we can create high-growth enterprises in numbers that would change our employment outlook and harness the demographic dividend of a youthful nation.

As a responsible corporate citizen, we are committed to continuously building on the foundations we have laid over past two decades to drive sustainable entrepreneur development. Entrepreneurs are our future!

Continue Reading

Business Landscape

Can We Make The Rand Grand Again?

The USD/ZAR currency pair (US Dollar/South African rand) is closely correlated with the EUR/ZAR (Euro/South African rand) with an 83.9% correlation.

Jeff Broth

Published

on

south-african-rand

The USD/ZAR currency pair (US Dollar/South African rand) is closely correlated with the EUR/ZAR (Euro/South African rand) with an 83.9% correlation. Simply put, the performance of the USD and the EUR with respect to the ZAR are one and the same. When the USD or the EUR appreciates, we are likely to see similar trends taking place with respect to the USD/ZAR and the EUR/ZAR currency pairs.

As of Thursday, 17 August 2017, the USD/ZAR exchange rate was 13.169. The 52-week trading range for this currency pair is 12.298 on the low end and 14.748 on the high-end. 10 years ago, at the height of the global financial crisis (August 21, 2007), $1 was trading at R13.17040. The USD appreciated sharply against emerging market currencies, notably the ZAR, in the years following the crisis. Between 2007 and January 2016, the USD gained on the ZAR. It reached a high of R16.44437 on 14 January 2016, before retreating sharply to R12.43849 on 24 March 2017.

Unbeknownst to many millennials in South Africa, the ZAR was not always trading at its current levels. Before Jacob Zuma assumed the presidency, and gross malfeasance engulfed the South African economic system, the Rand was a force to be reckoned with in global financial markets.

South Africa was considered the bright star of emerging market economies in Africa. Gold, platinum, coal, iron ore, tourism and other factors helped to create a positive image of the South African economy.

Economic Malfeasance Impacts Credit Ratings

Enter the Gupta scandal, Nkandla, multiple successive votes of no-confidence in the president, and ongoing fears about nationalization, the exodus of multinational corporations, and a crumbling infrastructure – the result is evident in the Rand. The South African economy continues to absorb swelling numbers of illegal immigrants, many of whom are living in squatter camps where rising levels of ethnocentrism are brewing. A flare-up is imminent.

International credit ratings agencies have downgraded South Africa’s rating over time, with the following ratings and outlooks from major agencies:

  • Moody’s assigned a Baa3 rating to South Africa with a negative outlook – June 9, 2017
  • S&P assigned a BB + rating to South Africa with a negative outlook – April 3, 2017
  • Fitch assigned a BB + rating with a stable outlook – April 7, 2017.

These credit ratings are extremely important to international investors says Weiss Finance professional, Sal Caputo, ‘They determine capital flows into South Africa. Investors, pension funds and sovereign wealth funds look towards credit ratings for their investment decisions in foreign countries. If we wind the clocks back to 1994, Fitch assigned a BB rating, Moody’s a Baa3 rating and S&P a BB rating to South Africa’s economy. While the ratings appear similar today, the sentiment (the outlook) is decidedly negative this time around.’

Pre-Global crisis, in 2006 the USD/ZAR was trading at 6.1392. Put into perspective, R100,000 would buy you $16,288.76, 11 years ago, and that same R100,000 is the equivalent of $7,588.17 today. These figures do not take into account the real money depreciation, or how much more you could have earned by investing that $16,288.76 over 11 years. The differences are dramatic. Inflation in South Africa is currently recorded at 5.1% year on year (June 2017).

This is good news in that it means the real purchasing power of the South African rand is not being adversely affected by rising prices. This is the lowest inflation rate for South Africa in 1.5 years. Conversely, the inflation rate in the United States for the 12 months ending July 2017 was measured at 1.7% – 3 times less than South Africa’s rate.

Clearly the value of the South African currency is being eroded away every year. The current interest rate at South African banks was measured at 6.75% on July 20, 2017. This means that investments in SA banks yield real money growth to capital. Provided inflation is kept in check, and the SA infrastructure is renovated, upgraded and maintained, good governance can help the SA economy to get back on track.

A Thought: In the 1960s, the South African rand was grand, as it traded at a mere R0.72 to the USD. Things have certainly reversed since then, but the Rainbow Nation has the ability to turn a new page and make the Rand proudly South African once again.

Continue Reading
Advertisement

SPOTLIGHT

Advertisement

Follow Us

Advertisement

Trending

FREE 30-PAGE EBOOK: How to Build an Entrepreneurial Mindset

Sign up now for Entrepreneur's Daily Newsletters to Download​​